[Congressional Record Volume 146, Number 135 (Wednesday, October 25, 2000)]
[House]
[Pages H10909-H11087]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




 CONFERENCE REPORT ON H.R. 2614, CERTIFIED DEVELOPMENT COMPANY PROGRAM 
                        IMPROVEMENTS ACT OF 2000

  Mr. ARMEY submitted the following conference report and statement on 
the bill (H.R. 2614) to amend the Small Business Investment Act to make 
improvements to the certified development company program, and for 
other purposes:

                 Conference Report (H. Rept. 106-1004)

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendment of the Senate to the bill (H.R. 
     2614) to amend the Small Business Investment Act to make 
     improvements to the certified development company program, 
     and for other purposes, having met, after full and free 
     conference, have agreed to recommend and do recommend to 
     their respective Houses as follows:
       That the House recede from its disagreement to the 
     amendment of the Senate and agree to the same with an 
     amendment as follows:
       In lieu of the matter proposed to be inserted by the Senate 
     amendment, insert the following:

     SECTION 1. ENACTMENT OF OTHER PROVISIONS OF LAW.

       The provisions of the following bills of the 106th Congress 
     are hereby enacted into law:
       (1) H.R. 5538, as introduced on October 25, 2000 (the 
     Minimum Wage Act of 2000).
       (2) H.R. 5542, as introduced on October 25, 2000 (the 
     Taxpayer Relief Act of 2000).
       (3) H.R. 5543, as introduced on October 25, 2000 (the 
     Medicare, Medicaid, and SCHIP Benefits Improvement and 
     Protection Act of 2000).
       (4) H.R. 5544, as introduced on October 25, 2000 (the Pain 
     Relief Promotion Act of 2000).
       (5) H.R. 5545, as introduced on October 25, 2000 (the Small 
     Business Reauthorization Act of 2000).

     SEC. 2. PUBLICATION OF ACT.

       In publishing this Act in slip form and in the United 
     States Statutes at Large pursuant to section 112 of title 1, 
     United States Code, the Archivist of the United States shall 
     include after the date of approval appendixes setting forth 
     the texts of the bills referred to in section 1.
       And the Senate agree to the same.
     Jim Talent,
     Dick Armey,
                                Managers on the Part of the House.

     Christopher Bond,
     Conrad Burns,
                               Managers on the Part of the Senate.
    

----------------------------------------------------------------------------------------------------------------
 
-----------------------------------------------------------------------------------------------------------------
                                            NOTICE--OCTOBER 23, 2000
 
    A final issue of the Congressional Record for the 106th Congress, 2d Session, will be published on November
 29, 2000, in order to permit Members to revise and extend their remarks.
    All material for insertion must be signed by the Member and delivered to the respective offices of the
 Official Reporters of Debates (Room HT-60 or S-123 of the Capitol), Monday through Friday, between the hours of
 10:00 a.m. and 3:00 p.m. through November 28. The final issue will be dated November 29, 2000, and will be
 delivered on Friday, December 1, 2000.
    None of the material printed in the final issue of the Congressional Record may contain subject matter, or
 relate to any event that occurred after the sine die date.
    Senators' statements should also be submitted electronically, either on a disk to accompany the signed
 statement, or by e-mail to the Official Reporters of Debates at ``Records@Reporters''.
    Members of the House of Representatives' statements may also be submitted electronically by e-mail, to
 accompany the signed statement, and formatted according to the instructions for the Extensions of Remarks
 template at http://clerkhouse.house.gov. The Official Reporters will transmit to GPO the template formatted
 electronic file only after receipt of, and authentication with, the hard copy, signed manuscript. Deliver
 statements to the Official Reporters in Room HT-60.
    Members of Congress desiring to purchase reprints of material submitted for inclusion in the Congressional
 Record may do so by contacting the Congressional Printing Management Division, at the Government Printing
 Office, on 512-0224, between the hours of 8:00 a.m. and 4:00 p.m. daily.
    By order of the Joint Committee on Printing.
                                                                      WILLIAM M. THOMAS, Chairman.
----------------------------------------------------------------------------------------------------------------


[[Page H10910]]

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

       The managers on the part of the House and the Senate at the 
     conference on the disagreeing votes of the two Houses on the 
     amendment of the Senate to the bill (H.R. 2614) to amend the 
     Small Business Investment Act to make improvements to the 
     certified development company program, and for other 
     purposes, submit the following joint statement to the House 
     and the Senate in explanation of the effect of the action 
     agreed upon by the managers and recommended in the 
     accompanying conference report:
       The Senate amendment struck all of the House bill after the 
     enacting clause and inserted a substitute text.
       The House recedes from its disagreement to the amendment of 
     the Senate with an amendment that is a substitute for the 
     House bill and the Senate amendment.
       The conference agreement would enact by reference the 
     provisions of five bills introduced on October 25, 2000. 
     Those bills are the following:
       (1) H.R. 5538, the Minimum Wage Act of 2000.
       (2) H.R. 5542, the Taxpayer Relief Act of 2000.
       (3) H.R. 5543, the Medicare, Medicaid, and SCHIP Benefits 
     Improvement and Protection Act of 2000.
       (4) H.R. 5544, the Pain Relief Promotion Act of 2000.
       (5) H.R. 5545, the Small Business Reauthorization Act of 
     2000.
       This joint statement sets out for convenience the text of 
     each bill that would be enacted in the conference report by 
     reference.


                        minimum wage act of 2000

       The conference agreement would enact the provisions of H.R. 
     5538, as introduced on October 25, 2000. The text of that 
     bill follows:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Minimum Wage Act of 2000''.

     SEC. 2. MINIMUM WAGE INCREASE.

       Paragraph (1) of section 6(a) of the Fair Labor Standards 
     Act of 1938 (29 U.S.C. 206(a)) is amended to read as follows:
       ``(1) except as otherwise provided in this section. Not 
     less than $5.15 an hour during the period ending June 30, 
     2000, not less than $5.65 an hour during the year beginning 
     January 1, 2001, and not less than $6.15 an hour beginning 
     January 1, 2002;''.


                      taxpayer relief act of 2000

       The conference agreement would enact the provisions of H.R. 
     5542, as introduced on October 25, 2000. The text of that 
     bill follows:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This Act may be cited as the ``Taxpayer 
     Relief Act of 2000''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code.

       TITLE I--FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

Sec. 101. Repeal of foreign sales corporation rules.
Sec. 102. Treatment of extraterritorial income.
Sec. 103. Technical and conforming amendments.
Sec. 104. Effective date.

                  TITLE II--SMALL BUSINESS TAX RELIEF

Sec. 201. Extension of work opportunity tax credit.
Sec. 202. Increase in amortizable reforestation expenditures, etc.
Sec. 203. Increase in expense treatment for small businesses.
Sec. 204. Increased deduction for meal expenses.
Sec. 205. Increased deductibility of business meal expenses for 
              individuals subject to Federal limitations on hours of 
              service.
Sec. 206. Repeal of modification of installment method.
Sec. 207. Income averaging not to increase alternative minimum tax 
              liability; income averaging for fishermen.
Sec. 208. Repeal of occupational taxes relating to distilled spirits, 
              wine, and beer.
Sec. 209. Exclusion from gross income for certain forgiven mortgage 
              obligations.
Sec. 210. Clarification of cash accounting rules for small business.
Sec. 211. Amendments relating to demand deposit accounts at depository 
              institutions.

  TITLE III--HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

Sec. 301. Deduction for 100 percent of health insurance costs of self-
              employed individuals.
Sec. 302. Deduction for health and long-term care insurance costs of 
              individuals not participating in employer-subsidized 
              health plans.
Sec. 303. 2-year extension of availability of medical savings accounts.
Sec. 304. Additional consumer protections for long-term care insurance.
Sec. 305. Deduction for providing long-term care in the home to 
              household members.

   TITLE IV--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

Sec. 400. Short title.

               Subtitle A--Individual Retirement Accounts

Sec. 401. Modification of IRA contribution limits.
Sec. 402. Deemed IRAs under employer plans.
Sec. 403. Tax-free distributions from individual retirement accounts 
              for charitable purposes.
Sec. 404. Modification of AGI limits for Roth IRAs.

                     Subtitle B--Expanding Coverage

Sec. 411. Increase in benefit and contribution limits.
Sec. 412. Plan loans for subchapter S owners, partners, and sole 
              proprietors.
Sec. 413. Modification of top-heavy rules.
Sec. 414. Elective deferrals not taken into account for purposes of 
              deduction limits.
Sec. 415. Repeal of coordination requirements for deferred compensation 
              plans of State and local governments and tax-exempt 
              organizations.
Sec. 416. Elimination of user fee for requests to IRS regarding pension 
              plans.
Sec. 417. Deduction limits.
Sec. 418. Option to treat elective deferrals as after-tax Roth 
              contributions.

                Subtitle C--Enhancing Fairness for Women

Sec. 421. Catch-up contributions for individuals age 50 or over.
Sec. 422. Equitable treatment for contributions of employees to defined 
              contribution plans.
Sec. 423. Faster vesting of certain employer matching contributions.
Sec. 424. Simplify and update the minimum distribution rules.
Sec. 425. Clarification of tax treatment of division of section 457 
              plan benefits upon divorce.
Sec. 426. Provisions relating to hardship distributions.
Sec. 427. Waiver of tax on nondeductible contributions for domestic or 
              similar workers.

          Subtitle D--Increasing Portability for Participants

Sec. 431. Rollovers allowed among various types of plans.
Sec. 432. Rollovers of IRAs into workplace retirement plans.
Sec. 433. Rollovers of after-tax contributions.
Sec. 434. Hardship exception to 60-day rule.
Sec. 435. Treatment of forms of distribution.
Sec. 436. Rationalization of restrictions on distributions.
Sec. 437. Purchase of service credit in governmental defined benefit 
              plans.
Sec. 438. Employers may disregard rollovers for purposes of cash-out 
              amounts.
Sec. 439. Minimum distribution and inclusion requirements for section 
              457 plans.

       Subtitle E--Strengthening Pension Security and Enforcement

Sec. 441. Repeal of 155 percent of current liability funding limit.
Sec. 442. Maximum contribution deduction rules modified and applied to 
              all defined benefit plans.
Sec. 443. Excise tax relief for sound pension funding.
Sec. 444. Excise tax on failure to provide notice by defined benefit 
              plans significantly reducing future benefit accruals.
Sec. 445. Treatment of multiemployer plans under section 415.
Sec. 446. Protection of investment of employee contributions to 401(k) 
              plans.
Sec. 447. Periodic pension benefits statements.
Sec. 448. Prohibited allocations of stock in S corporation ESOP.

                Subtitle F--Reducing Regulatory Burdens

Sec. 451. Modification of timing of plan valuations.
Sec. 452. ESOP dividends may be reinvested without loss of dividend 
              deduction.
Sec. 453. Repeal of transition rule relating to certain highly 
              compensated employees.
Sec. 454. Employees of tax-exempt entities.
Sec. 455. Clarification of treatment of employer-provided retirement 
              advice.
Sec. 456. Reporting simplification.
Sec. 457. Improvement of employee plans compliance resolution system.
Sec. 458. Repeal of the multiple use test.
Sec. 459. Flexibility in nondiscrimination, coverage, and line of 
              business rules.
Sec. 460. Extension to all governmental plans of moratorium on 
              application of certain nondiscrimination rules applicable 
              to State and local plans.
Sec. 461. Notice and consent period regarding distributions.
Sec. 462. Annual report dissemination.
Sec. 463. Technical corrections to SAVER Act.
Sec. 464. Study of pension coverage.

                   Subtitle G--Other ERISA Provisions

Sec. 471. Missing participants.
Sec. 472. Reduced PBGC premium for new plans of small employers.
Sec. 473. Reduction of additional PBGC premium for new and small plans.
Sec. 474. Authorization for PBGC to pay interest on premium overpayment 
              refunds.
Sec. 475. Substantial owner benefits in terminated plans.
Sec. 476. Multiemployer plan benefits guarantee.
Sec. 477. Civil penalties for breach of fiduciary responsibility.
Sec. 478. Benefit suspension notice.

                      Subtitle H--Plan Amendments

Sec. 481. Provisions relating to plan amendments.

[[Page H10911]]

                TITLE V--SCHOOL CONSTRUCTION PROVISIONS

Sec. 501. Additional increase in arbitrage rebate exception for 
              governmental bonds used to finance educational 
              facilities.
Sec. 502. Modification of arbitrage rebate rules applicable to public 
              school construction bonds.
Sec. 503. Modification of special arbitrage rule for certain funds.
Sec. 504. Treatment of qualified public educational facility bonds as 
              exempt facility bonds.
Sec. 505. Expansion of qualified zone academy bond program.

                   TITLE VI--COMMUNITY REVITALIZATION

           Subtitle A--Tax Incentives for Renewal Communities

Sec. 601. Designation of and tax incentives for renewal communities.
Sec. 602. Work opportunity credit for hiring youth residing in renewal 
              communities.

   Subtitle B--Extension and Expansion of Empowerment Zone Incentives

Sec. 611. Authority to designate 9 additional empowerment zones.
Sec. 612. Extension of empowerment zone treatment through 2009.
Sec. 613. 20 percent employment credit for all empowerment zones
Sec. 614. Increased expensing under section 179.
Sec. 615. Higher limits on tax-exempt empowerment zone facility bonds.
Sec. 616. Nonrecognition of gain on rollover of empowerment zone 
              investments.
Sec. 617. Increased exclusion of gain on sale of empowerment zone 
              stock.

                   Subtitle C--New Markets Tax Credit

Sec. 621. New markets tax credit.

         Subtitle D--Improvements in Low-Income Housing Credit

Sec. 631. Modification of State ceiling on low-income housing credit.
Sec. 632. Modification of criteria for allocating housing credits among 
              projects.
Sec. 633. Additional responsibilities of housing credit agencies.
Sec. 634. Modifications to rules relating to basis of building which is 
              eligible for credit.
Sec. 635. Other modifications.
Sec. 636. Carryforward rules.
Sec. 637. Effective date.

     Subtitle E--Other Community Renewal and New Markets Assistance

Sec. 641. Transfer of unoccupied and substandard HUD-held housing to 
              local governments and community development corporations.
Sec. 642. Transfer of HUD assets in revitalization areas.
Sec. 643. Risk-sharing demonstration.
Sec. 644. Prevention and treatment of substance abuse; services 
              provided through religious organizations.

                      Subtitle F--Other Provisions

Sec. 651. Acceleration of phase-in of increase in volume cap on private 
              activity bonds.
Sec. 652. Modifications to expensing of environmental remediation 
              costs.
Sec. 653. Extension of DC homebuyer tax credit.

   TITLE VII--ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL PROVISIONS

                 Subtitle A--Administrative Provisions

Sec. 701. Exemption of certain reporting requirements.
Sec. 702. Extension of deadlines for IRS compliance with certain notice 
              requirements.
Sec. 703. Extension of authority for undercover operations.
Sec. 704. Confidentiality of certain documents relating to closing and 
              similar agreements and to agreements with foreign 
              governments.
Sec. 705. Increase in threshold for Joint Committee reports on refunds 
              and credits.
Sec. 706. Treatment of missing children with respect to certain tax 
              benefits.
Sec. 707. Amendments to statutes referencing yield on 52-week Treasury 
              bills.
Sec. 708. Adjustments for Consumer Price Index error.
Sec. 709. Prevention of duplication of loss through assumption of 
              liabilities giving rise to a deduction.

                  Subtitle B--Miscellaneous Provisions

Sec. 710. Repeal of 4.3-cent motor fuel excise taxes on railroads and 
              inland waterway transportation which remain in general 
              fund.
Sec. 711. Repeal of reduction of deductions for mutual life insurance 
              companies.
Sec. 712. Repeal of policyholders surplus account provisions.
Sec. 713. Credit to holders of qualified Amtrak bonds.
Sec. 714. Farm, fishing, and ranch risk management accounts.
Sec. 715. Extension of enhanced deduction for corporate donations of 
              computer technology.
Sec. 716. Relief from Federal tax liability arising with respect to 
              certain claims against the Department of Agriculture for 
              discrimination in farm credit and benefit programs.
Sec. 717. Expansion of credit for adoption expenses.
Sec. 718. Study concerning United States insurance companies with 
              certain offshore reinsurance affiliates.
Sec. 719. Treatment of Indian tribal governments under Federal 
              Unemployment Tax Act.

                   Subtitle C--Technical Corrections

Sec. 721. Amendments related to Ticket to Work and Work Incentives 
              Improvement Act of 1999.
Sec. 722. Amendments related to Tax and Trade Relief Extension Act of 
              1998.
Sec. 723. Amendments related to Internal Revenue Service Restructuring 
              and Reform Act of 1998.
Sec. 724. Amendments related to Taxpayer Relief Act of 1997.
Sec. 725. Amendments related to Balanced Budget Act of 1997.
Sec. 726. Amendments related to Small Business Job Protection Act of 
              1996.
Sec. 727. Amendment related to Revenue Reconciliation Act of 1990.
Sec. 728. Other technical corrections.
Sec. 729. Clerical changes.

                     Subtitle D--Pay-Go Adjustments

Sec. 731. Avoidance of a Pay-Go sequestration for fiscal year 2001.
       TITLE I--FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

     SEC. 101. REPEAL OF FOREIGN SALES CORPORATION RULES.

       Subpart C of part III of subchapter N of chapter 1 
     (relating to taxation of foreign sales corporations) is 
     hereby repealed.

     SEC. 102. TREATMENT OF EXTRATERRITORIAL INCOME.

       (a) In General.--Part III of subchapter B of chapter 1 
     (relating to items specifically excluded from gross income) 
     is amended by inserting before section 115 the following new 
     section:

     ``SEC. 114. EXTRATERRITORIAL INCOME.

       ``(a) Exclusion.--Gross income does not include 
     extraterritorial income.
       ``(b) Exception.--Subsection (a) shall not apply to 
     extraterritorial income which is not qualifying foreign trade 
     income as determined under subpart E of part III of 
     subchapter N.
       ``(c) Disallowance of Deductions.--
       ``(1) In general.--Any deduction of a taxpayer allocated 
     under paragraph (2) to extraterritorial income of the 
     taxpayer excluded from gross income under subsection (a) 
     shall not be allowed.
       ``(2) Allocation.--Any deduction of the taxpayer properly 
     apportioned and allocated to the extraterritorial income 
     derived by the taxpayer from any transaction shall be 
     allocated on a proportionate basis between--
       ``(A) the extraterritorial income derived from such 
     transaction which is excluded from gross income under 
     subsection (a), and
       ``(B) the extraterritorial income derived from such 
     transaction which is not so excluded.
       ``(d) Denial of Credits for Certain Foreign Taxes.--
     Notwithstanding any other provision of this chapter, no 
     credit shall be allowed under this chapter for any income, 
     war profits, and excess profits taxes paid or accrued to any 
     foreign country or possession of the United States with 
     respect to extraterritorial income which is excluded from 
     gross income under subsection (a).
       ``(e) Extraterritorial Income.--For purposes of this 
     section, the term `extraterritorial income' means the gross 
     income of the taxpayer attributable to foreign trading gross 
     receipts (as defined in section 942) of the taxpayer.''.
       (b) Qualifying Foreign Trade Income.--Part III of 
     subchapter N of chapter 1 is amended by inserting after 
     subpart D the following new subpart:

              ``Subpart E--Qualifying Foreign Trade Income

``Sec. 941. Qualifying foreign trade income.
``Sec. 942. Foreign trading gross receipts.
``Sec. 943. Other definitions and special rules.

     ``SEC. 941. QUALIFYING FOREIGN TRADE INCOME.

       ``(a) Qualifying Foreign Trade Income.--For purposes of 
     this subpart and section 114--
       ``(1) In general.--The term `qualifying foreign trade 
     income' means, with respect to any transaction, the amount of 
     gross income which, if excluded, will result in a reduction 
     of the taxable income of the taxpayer from such transaction 
     equal to the greatest of--
       ``(A) 30 percent of the foreign sale and leasing income 
     derived by the taxpayer from such transaction,
       ``(B) 1.2 percent of the foreign trading gross receipts 
     derived by the taxpayer from the transaction, or
       ``(C) 15 percent of the foreign trade income derived by the 
     taxpayer from the transaction.
     In no event shall the amount determined under subparagraph 
     (B) exceed 200 percent of the amount determined under 
     subparagraph (C).
       ``(2) Alternative computation.--A taxpayer may compute its 
     qualifying foreign trade income under a subparagraph of 
     paragraph (1) other than the subparagraph which results in 
     the greatest amount of such income.
       ``(3) Limitation on use of foreign trading gross receipts 
     method.--If any person computes its qualifying foreign trade 
     income from any transaction with respect to any property 
     under paragraph (1)(B), the qualifying foreign trade income 
     of such person (or any related person) with respect to any 
     other transaction involving such property shall be zero.
       ``(4) Rules for marginal costing.--The Secretary shall 
     prescribe regulations setting forth rules for the allocation 
     of expenditures in computing foreign trade income under 
     paragraph (1)(C) in those cases where a taxpayer is seeking 
     to establish or maintain a market for qualifying foreign 
     trade property.
       ``(5) Participation in international boycotts, etc.--Under 
     regulations prescribed by the Secretary, the qualifying 
     foreign trade income of a taxpayer for any taxable year shall 
     be reduced (but not below zero) by the sum of--

[[Page H10912]]

       ``(A) an amount equal to such income multiplied by the 
     international boycott factor determined under section 999, 
     and
       ``(B) any illegal bribe, kickback, or other payment (within 
     the meaning of section 162(c)) paid by or on behalf of the 
     taxpayer directly or indirectly to an official, employee, or 
     agent in fact of a government.
       ``(b) Foreign Trade Income.--For purposes of this subpart--
       ``(1) In general.--The term `foreign trade income' means 
     the taxable income of the taxpayer attributable to foreign 
     trading gross receipts of the taxpayer.
       ``(2) Special rule for cooperatives.--In any case in which 
     an organization to which part I of subchapter T applies which 
     is engaged in the marketing of agricultural or horticultural 
     products sells qualifying foreign trade property, in 
     computing the taxable income of such cooperative, there shall 
     not be taken into account any deduction allowable under 
     subsection (b) or (c) of section 1382 (relating to patronage 
     dividends, per-unit retain allocations, and nonpatronage 
     distributions).
       ``(c) Foreign Sale and Leasing Income.--For purposes of 
     this section--
       ``(1) In general.--The term `foreign sale and leasing 
     income' means, with respect to any transaction--
       ``(A) foreign trade income properly allocable to activities 
     which--
       ``(i) are described in paragraph (2)(A)(i) or (3) of 
     section 942(b), and
       ``(ii) are performed by the taxpayer (or any person acting 
     under a contract with such taxpayer) outside the United 
     States, or
       ``(B) foreign trade income derived by the taxpayer in 
     connection with the lease or rental of qualifying foreign 
     trade property for use by the lessee outside the United 
     States.
       ``(2) Special rules for leased property.--
       ``(A) Sales income.--The term `foreign sale and leasing 
     income' includes any foreign trade income derived by the 
     taxpayer from the sale of property described in paragraph 
     (1)(B).
       ``(B) Limitation in certain cases.--Except as provided in 
     regulations, in the case of property which--
       ``(i) was manufactured, produced, grown, or extracted by 
     the taxpayer, or
       ``(ii) was acquired by the taxpayer from a related person 
     for a price which was not determined in accordance with the 
     rules of section 482,

     the amount of foreign trade income which may be treated as 
     foreign sale and leasing income under paragraph (1)(B) or 
     subparagraph (A) of this paragraph with respect to any 
     transaction involving such property shall not exceed the 
     amount which would have been determined if the taxpayer had 
     acquired such property for the price determined in accordance 
     with the rules of section 482.
       ``(3) Special rules.--
       ``(A) Excluded property.--Foreign sale and leasing income 
     shall not include any income properly allocable to excluded 
     property described in subparagraph (B) of section 943(a)(3) 
     (relating to intangibles).
       ``(B) Only direct expenses taken into account.--For 
     purposes of this subsection, any expense other than a 
     directly allocable expense shall not be taken into account in 
     computing foreign trade income.

     ``SEC. 942. FOREIGN TRADING GROSS RECEIPTS.

       ``(a) Foreign Trading Gross Receipts.--
       ``(1) In general.--Except as otherwise provided in this 
     section, for purposes of this subpart, the term `foreign 
     trading gross receipts' means the gross receipts of the 
     taxpayer which are--
       ``(A) from the sale, exchange, or other disposition of 
     qualifying foreign trade property,
       ``(B) from the lease or rental of qualifying foreign trade 
     property for use by the lessee outside the United States,
       ``(C) for services which are related and subsidiary to--
       ``(i) any sale, exchange, or other disposition of 
     qualifying foreign trade property by such taxpayer, or
       ``(ii) any lease or rental of qualifying foreign trade 
     property described in subparagraph (B) by such taxpayer,
       ``(D) for engineering or architectural services for 
     construction projects located (or proposed for location) 
     outside the United States, or
       ``(E) for the performance of managerial services for a 
     person other than a related person in furtherance of the 
     production of foreign trading gross receipts described in 
     subparagraph (A), (B), or (C).
     Subparagraph (E) shall not apply to a taxpayer for any 
     taxable year unless at least 50 percent of its foreign 
     trading gross receipts (determined without regard to this 
     sentence) for such taxable year is derived from activities 
     described in subparagraph (A), (B), or (C).
       ``(2) Certain receipts excluded on basis of use; subsidized 
     receipts excluded.--The term `foreign trading gross receipts' 
     shall not include receipts of a taxpayer from a transaction 
     if--
       ``(A) the qualifying foreign trade property or services--
       ``(i) are for ultimate use in the United States, or
       ``(ii) are for use by the United States or any 
     instrumentality thereof and such use of qualifying foreign 
     trade property or services is required by law or regulation, 
     or
       ``(B) such transaction is accomplished by a subsidy granted 
     by the government (or any instrumentality thereof) of the 
     country or possession in which the property is manufactured, 
     produced, grown, or extracted.
       ``(3) Election to exclude certain receipts.--The term 
     `foreign trading gross receipts' shall not include gross 
     receipts of a taxpayer from a transaction if the taxpayer 
     elects not to have such receipts taken into account for 
     purposes of this subpart.
       ``(b) Foreign Economic Process Requirements.--
       ``(1) In general.--Except as provided in subsection (c), a 
     taxpayer shall be treated as having foreign trading gross 
     receipts from any transaction only if economic processes with 
     respect to such transaction take place outside the United 
     States as required by paragraph (2).
       ``(2) Requirement.--
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to the gross receipts of a taxpayer derived 
     from any transaction if--
       ``(i) such taxpayer (or any person acting under a contract 
     with such taxpayer) has participated outside the United 
     States in the solicitation (other than advertising), the 
     negotiation, or the making of the contract relating to such 
     transaction, and
       ``(ii) the foreign direct costs incurred by the taxpayer 
     attributable to the transaction equal or exceed 50 percent of 
     the total direct costs attributable to the transaction.
       ``(B) Alternative 85-percent test.--A taxpayer shall be 
     treated as satisfying the requirements of subparagraph 
     (A)(ii) with respect to any transaction if, with respect to 
     each of at least 2 subparagraphs of paragraph (3), the 
     foreign direct costs incurred by such taxpayer attributable 
     to activities described in such subparagraph equal or exceed 
     85 percent of the total direct costs attributable to 
     activities described in such subparagraph.
       ``(C) Definitions.--For purposes of this paragraph--
       ``(i) Total direct costs.--The term `total direct costs' 
     means, with respect to any transaction, the total direct 
     costs incurred by the taxpayer attributable to activities 
     described in paragraph (3) performed at any location by the 
     taxpayer or any person acting under a contract with such 
     taxpayer.
       ``(ii) Foreign direct costs.--The term `foreign direct 
     costs' means, with respect to any transaction, the portion of 
     the total direct costs which are attributable to activities 
     performed outside the United States.
       ``(3) Activities relating to qualifying foreign trade 
     property.--The activities described in this paragraph are any 
     of the following with respect to qualifying foreign trade 
     property--
       ``(A) advertising and sales promotion,
       ``(B) the processing of customer orders and the arranging 
     for delivery,
       ``(C) transportation outside the United States in 
     connection with delivery to the customer,
       ``(D) the determination and transmittal of a final invoice 
     or statement of account or the receipt of payment, and
       ``(E) the assumption of credit risk.
       ``(4) Economic processes performed by related persons.--A 
     taxpayer shall be treated as meeting the requirements of this 
     subsection with respect to any sales transaction involving 
     any property if any related person has met such requirements 
     in such transaction or any other sales transaction involving 
     such property.
       ``(c) Exception From Foreign Economic Process 
     Requirement.--
       ``(1) In general.--The requirements of subsection (b) shall 
     be treated as met for any taxable year if the foreign trading 
     gross receipts of the taxpayer for such year do not exceed 
     $5,000,000.
       ``(2) Receipts of related persons aggregated.--All related 
     persons shall be treated as one person for purposes of 
     paragraph (1), and the limitation under paragraph (1) shall 
     be allocated among such persons in a manner provided in 
     regulations prescribed by the Secretary.
       ``(3) Special rule for pass-thru entities.--In the case of 
     a partnership, S corporation, or other pass-thru entity, the 
     limitation under paragraph (1) shall apply with respect to 
     the partnership, S corporation, or entity and with respect to 
     each partner, shareholder, or other owner.

     ``SEC. 943. OTHER DEFINITIONS AND SPECIAL RULES.

       ``(a) Qualifying Foreign Trade Property.--For purposes of 
     this subpart--
       ``(1) In general.--The term `qualifying foreign trade 
     property' means property--
       ``(A) manufactured, produced, grown, or extracted within or 
     outside the United States,
       ``(B) held primarily for sale, lease, or rental, in the 
     ordinary course of trade or business for direct use, 
     consumption, or disposition outside the United States, and
       ``(C) not more than 50 percent of the fair market value of 
     which is attributable to--
       ``(i) articles manufactured, produced, grown, or extracted 
     outside the United States, and
       ``(ii) direct costs for labor (determined under the 
     principles of section 263A) performed outside the United 
     States.

     For purposes of subparagraph (C), the fair market value of 
     any article imported into the United States shall be its 
     appraised value, as determined by the Secretary under section 
     402 of the Tariff Act of 1930 (19 U.S.C. 1401a) in connection 
     with its importation, and the direct costs for labor under 
     clause (ii) do not include costs that would be treated under 
     the principles of section 263A as direct labor costs 
     attributable to articles described in clause (i).
       ``(2) U.S. taxation to ensure consistent treatment.--
     Property which (without regard to this paragraph) is 
     qualifying foreign trade property and which is manufactured, 
     produced, grown, or extracted outside the United States shall 
     be treated as qualifying foreign trade property only if it is 
     manufactured, produced, grown, or extracted by--
       ``(A) a domestic corporation,
       ``(B) an individual who is a citizen or resident of the 
     United States,
       ``(C) a foreign corporation with respect to which an 
     election under subsection (e) (relating to foreign 
     corporations electing to be subject to United States 
     taxation) is in effect, or

[[Page H10913]]

       ``(D) a partnership or other pass-thru entity all of the 
     partners or owners of which are described in subparagraph 
     (A), (B), or (C).

     Except as otherwise provided by the Secretary, tiered 
     partnerships or pass-thru entities shall be treated as 
     described in subparagraph (D) if each of the partnerships or 
     entities is directly or indirectly wholly owned by persons 
     described in subparagraph (A), (B), or (C).
       ``(3) Excluded property.--The term `qualifying foreign 
     trade property' shall not include--
       ``(A) property leased or rented by the taxpayer for use by 
     any related person,
       ``(B) patents, inventions, models, designs, formulas, or 
     processes whether or not patented, copyrights (other than 
     films, tapes, records, or similar reproductions, and other 
     than computer software (whether or not patented), for 
     commercial or home use), goodwill, trademarks, trade brands, 
     franchises, or other like property,
       ``(C) oil or gas (or any primary product thereof),
       ``(D) products the transfer of which is prohibited or 
     curtailed to effectuate the policy set forth in paragraph 
     (2)(C) of section 3 of Public Law 96-72, or
       ``(E) any unprocessed timber which is a softwood.

     For purposes of subparagraph (E), the term `unprocessed 
     timber' means any log, cant, or similar form of timber.
       ``(4) Property in short supply.--If the President 
     determines that the supply of any property described in 
     paragraph (1) is insufficient to meet the requirements of the 
     domestic economy, the President may by Executive order 
     designate the property as in short supply. Any property so 
     designated shall not be treated as qualifying foreign trade 
     property during the period beginning with the date specified 
     in the Executive order and ending with the date specified in 
     an Executive order setting forth the President's 
     determination that the property is no longer in short supply.
       ``(b) Other Definitions and Rules.--For purposes of this 
     subpart--
       ``(1) Transaction.--
       ``(A) In general.--The term `transaction' means--
       ``(i) any sale, exchange, or other disposition,
       ``(ii) any lease or rental, and
       ``(iii) any furnishing of services.
       ``(B) Grouping of transactions.--To the extent provided in 
     regulations, any provision of this subpart which, but for 
     this subparagraph, would be applied on a transaction-by-
     transaction basis may be applied by the taxpayer on the basis 
     of groups of transactions based on product lines or 
     recognized industry or trade usage. Such regulations may 
     permit different groupings for different purposes.
       ``(2) United states defined.--The term `United States' 
     includes the Commonwealth of Puerto Rico. The preceding 
     sentence shall not apply for purposes of determining whether 
     a corporation is a domestic corporation.
       ``(3) Related person.--A person shall be related to another 
     person if such persons are treated as a single employer under 
     subsection (a) or (b) of section 52 or subsection (m) or (o) 
     of section 414, except that determinations under subsections 
     (a) and (b) of section 52 shall be made without regard to 
     section 1563(b).
       ``(4) Gross and taxable income.--Section 114 shall not be 
     taken into account in determining the amount of gross income 
     or foreign trade income from any transaction.
       ``(c) Source Rule.--Under regulations, in the case of 
     qualifying foreign trade property manufactured, produced, 
     grown, or extracted within the United States, the amount of 
     income of a taxpayer from any sales transaction with respect 
     to such property which is treated as from sources without the 
     United States shall not exceed--
       ``(1) in the case of a taxpayer computing its qualifying 
     foreign trade income under section 941(a)(1)(B), the amount 
     of the taxpayer's foreign trade income which would (but for 
     this subsection) be treated as from sources without the 
     United States if the foreign trade income were reduced by an 
     amount equal to 4 percent of the foreign trading gross 
     receipts with respect to the transaction, and
       ``(2) in the case of a taxpayer computing its qualifying 
     foreign trade income under section 941(a)(1)(C), 50 percent 
     of the amount of the taxpayer's foreign trade income which 
     would (but for this subsection) be treated as from sources 
     without the United States.
       ``(d) Treatment of Withholding Taxes.--
       ``(1) In general.--For purposes of section 114(d), any 
     withholding tax shall not be treated as paid or accrued with 
     respect to extraterritorial income which is excluded from 
     gross income under section 114(a). For purposes of this 
     paragraph, the term `withholding tax' means any tax which is 
     imposed on a basis other than residence and for which credit 
     is allowable under section 901 or 903.
       ``(2) Exception.--Paragraph (1) shall not apply to any 
     taxpayer with respect to extraterritorial income from any 
     transaction if the taxpayer computes its qualifying foreign 
     trade income with respect to the transaction under section 
     941(a)(1)(A).
       ``(e) Election To Be Treated as Domestic Corporation.--
       ``(1) In general.--An applicable foreign corporation may 
     elect to be treated as a domestic corporation for all 
     purposes of this title if such corporation waives all 
     benefits to such corporation granted by the United States 
     under any treaty. No election under section 1362(a) may be 
     made with respect to such corporation.
       ``(2) Applicable foreign corporation.--For purposes of 
     paragraph (1), the term `applicable foreign corporation' 
     means any foreign corporation if--
       ``(A) such corporation manufactures, produces, grows, or 
     extracts property in the ordinary course of such 
     corporation's trade or business, or
       ``(B) substantially all of the gross receipts of such 
     corporation are foreign trading gross receipts.
       ``(3) Period of election.--
       ``(A) In general.--Except as otherwise provided in this 
     paragraph, an election under paragraph (1) shall apply to the 
     taxable year for which made and all subsequent taxable years 
     unless revoked by the taxpayer. Any revocation of such 
     election shall apply to taxable years beginning after such 
     revocation.
       ``(B) Termination.--If a corporation which made an election 
     under paragraph (1) for any taxable year fails to meet the 
     requirements of subparagraph (A) or (B) of paragraph (2) for 
     any subsequent taxable year, such election shall not apply to 
     any taxable year beginning after such subsequent taxable 
     year.
       ``(C) Effect of revocation or termination.--If a 
     corporation which made an election under paragraph (1) 
     revokes such election or such election is terminated under 
     subparagraph (B), such corporation (and any successor 
     corporation) may not make such election for any of the 5 
     taxable years beginning with the first taxable year for which 
     such election is not in effect as a result of such revocation 
     or termination.
       ``(4) Special rules.--
       ``(A) Requirements.--This subsection shall not apply to an 
     applicable foreign corporation if such corporation fails to 
     meet the requirements (if any) which the Secretary may 
     prescribe to ensure that the taxes imposed by this chapter on 
     such corporation are paid.
       ``(B) Effect of election, revocation, and termination.--
       ``(i) Election.--For purposes of section 367, a foreign 
     corporation making an election under this subsection shall be 
     treated as transferring (as of the first day of the first 
     taxable year to which the election applies) all of its assets 
     to a domestic corporation in connection with an exchange to 
     which section 354 applies.
       ``(ii) Revocation and termination.--For purposes of section 
     367, if--

       ``(I) an election is made by a corporation under paragraph 
     (1) for any taxable year, and
       ``(II) such election ceases to apply for any subsequent 
     taxable year,

     such corporation shall be treated as a domestic corporation 
     transferring (as of the 1st day of the first such subsequent 
     taxable year to which such election ceases to apply) all of 
     its property to a foreign corporation in connection with an 
     exchange to which section 354 applies.
       ``(C) Eligibility for election.--The Secretary may by 
     regulation designate one or more classes of corporations 
     which may not make the election under this subsection.
       ``(f) Rules Relating to Allocations of Qualifying Foreign 
     Trade Income From Shared Partnerships.--
       ``(1) In general.--If--
       ``(A) a partnership maintains a separate account for 
     transactions (to which this subpart applies) with each 
     partner,
       ``(B) distributions to each partner with respect to such 
     transactions are based on the amounts in the separate account 
     maintained with respect to such partner, and
       ``(C) such partnership meets such other requirements as the 
     Secretary may by regulations prescribe,

     then such partnership shall allocate to each partner items of 
     income, gain, loss, and deduction (including qualifying 
     foreign trade income) from any transaction to which this 
     subpart applies on the basis of such separate account.
       ``(2) Special rules.--For purposes of this subpart, in the 
     case of a partnership to which paragraph (1) applies--
       ``(A) any partner's interest in the partnership shall not 
     be taken into account in determining whether such partner is 
     a related person with respect to any other partner, and
       ``(B) the election under section 942(a)(3) shall be made 
     separately by each partner with respect to any transaction 
     for which the partnership maintains separate accounts for 
     each partner.
       ``(g) Exclusion for Patrons of Agricultural and 
     Horticultural Cooperatives.--Any amount described in 
     paragraph (1) or (3) of section 1385(a)--
       ``(1) which is received by a person from an organization to 
     which part I of subchapter T applies which is engaged in the 
     marketing of agricultural or horticultural products, and
       ``(2) which is allocable to qualifying foreign trade income 
     and designated as such by the organization in a written 
     notice mailed to its patrons during the payment period 
     described in section 1382(d),

     shall be treated as qualifying foreign trade income of such 
     person for purposes of section 114. The taxable income of the 
     organization shall not be reduced under section 1382 by 
     reason of any amount to which the preceding sentence applies.
       ``(h) Special Rule for DISCs.--Section 114 shall not apply 
     to any taxpayer for any taxable year if, at any time during 
     the taxable year, the taxpayer is a member of any controlled 
     group of corporations (as defined in section 927(d)(4), as in 
     effect before the date of the enactment of this subsection) 
     of which a DISC is a member.''

     SEC. 103. TECHNICAL AND CONFORMING AMENDMENTS.

       (1) The second sentence of section 56(g)(4)(B)(i) is 
     amended by inserting before the period ``or under section 
     114''.
       (2) Section 275(a) is amended--
       (A) by striking ``or'' at the end of paragraph (4)(A), by 
     striking the period at the end of paragraph (4)(B) and 
     inserting ``, or'', and by adding at the end of paragraph (4) 
     the following new subparagraph:
       ``(C) such taxes are paid or accrued with respect to 
     qualifying foreign trade income (as defined in section 
     941).''; and

[[Page H10914]]

       (B) by adding at the end the following the following new 
     sentence: ``A rule similar to the rule of section 943(d) 
     shall apply for purposes of paragraph (4)(C).''.
       (3) Paragraph (3) of section 864(e) is amended--
       (A) by striking ``For purposes of'' and inserting:
       ``(A) In general.--For purposes of''; and
       (B) by adding at the end the following new subparagraph:
       ``(B) Assets producing exempt extraterritorial income.--For 
     purposes of allocating and apportioning any interest expense, 
     there shall not be taken into account any qualifying foreign 
     trade property (as defined in section 943(a)) which is held 
     by the taxpayer for lease or rental in the ordinary course of 
     trade or business for use by the lessee outside the United 
     States (as defined in section 943(b)(2)).''.
       (4) Section 903 is amended by striking ``164(a)'' and 
     inserting ``114, 164(a),''.
       (5) Section 999(c)(1) is amended by inserting 
     ``941(a)(5),'' after ``908(a),''.
       (6) The table of sections for part III of subchapter B of 
     chapter 1 is amended by inserting before the item relating to 
     section 115 the following new item:

``Sec. 114. Extraterritorial income.''.

       (7) The table of subparts for part III of subchapter N of 
     chapter 1 is amended by striking the item relating to subpart 
     E and inserting the following new item:
``Subpart E. Qualifying foreign trade income.''.

       (8) The table of subparts for part III of subchapter N of 
     chapter 1 is amended by striking the item relating to subpart 
     C.

     SEC. 104. EFFECTIVE DATE.

       (a) In General.--The amendments made by this title shall 
     apply to transactions after September 30, 2000.
       (b) No New FSCs; Termination of Inactive FSCs.--
       (1) No new fscs.--No corporation may elect after September 
     30, 2000, to be a FSC (as defined in section 922 of the 
     Internal Revenue Code of 1986, as in effect before the 
     amendments made by this Act).
       (2) Termination of inactive fscs.--If a FSC has no foreign 
     trade income (as defined in section 923(b) of such Code, as 
     so in effect) for any period of 5 consecutive taxable years 
     beginning after December 31, 2001, such FSC shall cease to be 
     treated as a FSC for purposes of such Code for any taxable 
     year beginning after such period.
       (c) Transition Period for Existing Foreign Sales 
     Corporations.--
       (1) In general.--In the case of a FSC (as so defined) in 
     existence on September 30, 2000, and at all times thereafter, 
     the amendments made by this Act shall not apply to any 
     transaction in the ordinary course of trade or business 
     involving a FSC which occurs--
       (A) before January 1, 2002; or
       (B) after December 31, 2001, pursuant to a binding 
     contract--
       (i) which is between the FSC (or any related person) and 
     any person which is not a related person; and
       (ii) which is in effect on September 30, 2000, and at all 
     times thereafter.

     For purposes of this paragraph, a binding contract shall 
     include a purchase option, renewal option, or replacement 
     option which is included in such contract and which is 
     enforceable against the seller or lessor.
       (2) Election to have amendments apply earlier.--A taxpayer 
     may elect to have the amendments made by this Act apply to 
     any transaction by a FSC or any related person to which such 
     amendments would apply but for the application of paragraph 
     (1). Such election shall be effective for the taxable year 
     for which made and all subsequent taxable years, and, once 
     made, may be revoked only with the consent of the Secretary 
     of the Treasury.
       (3) Exception for old earnings and profits of certain 
     corporations.--
       (A) In general.--In the case of a foreign corporation to 
     which this paragraph applies--
       (i) earnings and profits of such corporation accumulated in 
     taxable years ending before October 1, 2000, shall not be 
     included in the gross income of the persons holding stock in 
     such corporation by reason of section 943(e)(4)(B)(i), and
       (ii) rules similar to the rules of clauses (ii), (iii), and 
     (iv) of section 953(d)(4)(B) shall apply with respect to such 
     earnings and profits.

     The preceding sentence shall not apply to earnings and 
     profits acquired in a transaction after September 30, 2000, 
     to which section 381 applies unless the distributor or 
     transferor corporation was immediately before the transaction 
     a foreign corporation to which this paragraph applies.
       (B) Existing fscs.--This paragraph shall apply to any 
     controlled foreign corporation (as defined in section 957) 
     if--
       (i) such corporation is a FSC (as so defined) in existence 
     on September 30, 2000,
       (ii) such corporation is eligible to make the election 
     under section 943(e) by reason of being described in 
     paragraph (2)(B) of such section, and
       (iii) such corporation makes such election not later than 
     for its first taxable year beginning after December 31, 2001.
       (C) Other corporations.--This paragraph shall apply to any 
     controlled foreign corporation (as defined in section 957), 
     and such corporation shall (notwithstanding any provision of 
     section 943(e)) be treated as an applicable foreign 
     corporation for purposes of section 943(e), if--
       (i) such corporation is in existence on September 30, 2000,
       (ii) as of such date, such corporation is wholly owned 
     (directly or indirectly) by a domestic corporation 
     (determined without regard to any election under section 
     943(e)),
       (iii) for each of the 3 taxable years preceding the first 
     taxable year to which the election under section 943(e) by 
     such controlled foreign corporation applies--

       (I) all of the gross income of such corporation is subpart 
     F income (as defined in section 952), including by reason of 
     section 954(b)(3)(B), and
       (II) in the ordinary course of such corporation's trade or 
     business, such corporation regularly sold (or paid 
     commissions) to a FSC which on September 30, 2000, was a 
     related person to such corporation,

       (iv) such corporation has never made an election under 
     section 922(a)(2) (as in effect before the date of the 
     enactment of this paragraph) to be treated as a FSC, and
       (v) such corporation makes the election under section 
     943(e) not later than for its first taxable year beginning 
     after December 31, 2001.
     The preceding sentence shall cease to apply as of the date 
     that the domestic corporation referred to in clause (ii) 
     ceases to wholly own (directly or indirectly) such controlled 
     foreign corporation.
       (4) Related person.--For purposes of this subsection, the 
     term ``related person'' has the meaning given to such term by 
     section 943(b)(3).
       (5) Section references.--Except as otherwise expressly 
     provided, any reference in this subsection to a section or 
     other provision shall be considered to be a reference to a 
     section or other provision of the Internal Revenue Code of 
     1986, as amended by this title.
       (d) Special Rules Relating to Leasing Transactions.--
       (1) Sales income.--If foreign trade income in connection 
     with the lease or rental of property described in section 
     927(a)(1)(B) of such Code (as in effect before the amendments 
     made by this Act) is treated as exempt foreign trade income 
     for purposes of section 921(a) of such Code (as so in 
     effect), such property shall be treated as property described 
     in section 941(c)(1)(B) of such Code (as added by this Act) 
     for purposes of applying section 941(c)(2) of such Code (as 
     so added) to any subsequent transaction involving such 
     property to which the amendments made by this Act apply.
       (2) Limitation on use of gross receipts method.--If any 
     person computed its foreign trade income from any transaction 
     with respect to any property on the basis of a transfer price 
     determined under the method described in section 925(a)(1) of 
     such Code (as in effect before the amendments made by this 
     Act), then the qualifying foreign trade income (as defined 
     in section 941(a) of such Code, as in effect after such 
     amendment) of such person (or any related person) with 
     respect to any other transaction involving such property 
     (and to which the amendments made by this Act apply) shall 
     be zero.
                  TITLE II--SMALL BUSINESS TAX RELIEF

     SEC. 201. EXTENSION OF WORK OPPORTUNITY TAX CREDIT.

       (a) In General.--Section 51(c)(4)(B) is amended by striking 
     ``December 31, 2001'' and inserting ``June 30, 2004''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2001.

     SEC. 202. INCREASE IN AMORTIZABLE REFORESTATION EXPENDITURES, 
                   ETC.

       (a) Increase in Dollar Limitation.--Paragraph (1) of 
     section 194(b) (relating to amortization of reforestation 
     expenditures) is amended by striking ``$10,000 ($5,000'' and 
     inserting ``$25,000 ($12,500''.
       (b) Temporary Suspension of Increased Dollar Limitation.--
       (1) In general.--Subsection (b) of section 194 (relating to 
     amortization of reforestation expenditures) is amended by 
     adding at the end the following new paragraph:
       ``(5) Suspension of dollar limitation.--Paragraph (1) shall 
     not apply to taxable years beginning after December 31, 2000, 
     and before January 1, 2004.''.
       (2) Conforming amendment.--Paragraph (1) of section 48(b) 
     is amended by striking ``section 194(b)(1)'' and inserting 
     ``section 194(b)(1) and without regard to section 
     194(b)(5)''.
       (c) Capital Gain Treatment Under Section 631(b) To Apply to 
     Outright Sales by Land Owner.--
       (1) In general.--The first sentence of section 631(b) 
     (relating to disposal of timber with a retained economic 
     interest) is amended by striking ``retains an economic 
     interest in such timber'' and inserting ``either retains an 
     economic interest in such timber or makes an outright sale of 
     such timber''.
       (2) Conforming amendment.--The third sentence of section 
     631(b) is amended by striking ``The date of disposal'' and 
     inserting ``In the case of disposal of timber with a retained 
     economic interest, the date of disposal''.
       (d) Effective Dates.--
       (1) Subsections (a) and (b).--The amendments made by 
     subsections (a) and (b) shall apply to taxable years 
     beginning after December 31, 2000.
       (2) Subsection (c).--The amendment made by subsection (c) 
     shall apply to sales after the date of the enactment of this 
     Act.

     SEC. 203. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

       (a) In General.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $35,000.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 204. INCREASED DEDUCTION FOR MEAL EXPENSES.

       (a) In General.--Paragraph (1) of section 274(n) (relating 
     to only 50 percent of meal and

[[Page H10915]]

     entertainment expenses allowed as deduction) is amended by 
     striking ``50 percent'' in the text and inserting ``the 
     allowable percentage''.
       (b) Allowable Percentage.--Subsection (n) of section 274 is 
     amended by redesignating paragraphs (2) and (3) as paragraphs 
     (3) and (4), respectively, and by inserting after paragraph 
     (1) the following new paragraph:
       ``(2) Allowable percentage.--For purposes of paragraph (1), 
     the allowable percentage is--
       ``(A) in the case of amounts for items described in 
     paragraph (1)(B), 50 percent, and
       ``(B) in the case of expenses for food or beverages, 70 
     percent.''.
       (c) Conforming Amendment.--The heading for subsection (n) 
     of section 274 is amended by striking ``50 Percent'' and 
     inserting ``Limited Percentages''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 205. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES 
                   FOR INDIVIDUALS SUBJECT TO FEDERAL LIMITATIONS 
                   ON HOURS OF SERVICE.

       (a) In General.--Paragraph (4) of section 274(n) (relating 
     to limited percentages of meal and entertainment expenses 
     allowed as deduction), as redesignated by section 204, is 
     amended to read as follows:
       ``(4) Special rule for individuals subject to federal hours 
     of service.--In the case of any expenses for food or 
     beverages consumed while away from home (within the meaning 
     of section 162(a)(2)) by an individual during, or incident 
     to, the period of duty subject to the hours of service 
     limitations of the Department of Transportation, paragraph 
     (2)(B) shall be applied by substituting `80 percent' for `70 
     percent'.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 206. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.

       (a) In General.--Subsection (a) of section 536 of the 
     Ticket to Work and Work Incentives Improvement Act of 1999 
     (relating to modification of installment method and repeal of 
     installment method for accrual method taxpayers) is 
     repealed effective with respect to sales and other 
     dispositions occurring on or after the date of the 
     enactment of such Act.
       (b) Applicability.--The Internal Revenue Code of 1986 shall 
     be applied and administered as if that subsection (and the 
     amendments made by that subsection) had not been enacted.

     SEC. 207. INCOME AVERAGING NOT TO INCREASE ALTERNATIVE 
                   MINIMUM TAX LIABILITY; INCOME AVERAGING FOR 
                   FISHERMEN.

       (a) In General.--Section 55(c) (defining regular tax) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following:
       ``(2) Coordination with income averaging for farmers and 
     fishermen.--Solely for purposes of this section, section 1301 
     (relating to averaging of farm and fishing income) shall not 
     apply in computing the regular tax.''.
       (b) Allowing Income Averaging for Fishermen.--
       (1) In general.--Section 1301(a) is amended by striking 
     ``farming business'' and inserting ``farming business or 
     fishing business''.
       (2) Definition of elected farm income.--
       (A) In general.--Clause (i) of section 1301(b)(1)(A) is 
     amended by inserting ``or fishing business'' before the 
     semicolon.
       (B) Conforming amendment.--Subparagraph (B) of section 
     1301(b)(1) is amended by inserting ``or fishing business'' 
     after ``farming business'' both places it occurs.
       (3) Definition of fishing business.--Section 1301(b) is 
     amended by adding at the end the following new paragraph:
       ``(4) Fishing business.--The term `fishing business' means 
     the conduct of commercial fishing as defined in section 3 of 
     the Magnuson-Stevens Fishery Conservation and Management Act 
     (16 U.S.C. 1802).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 208. REPEAL OF OCCUPATIONAL TAXES RELATING TO DISTILLED 
                   SPIRITS, WINE, AND BEER.

       (a) Repeal of Occupational Taxes.--
       (1) In general.--The following provisions of part II of 
     subchapter A of chapter 51 (relating to occupational taxes) 
     are hereby repealed:
       (A) Subpart A (relating to proprietors of distilled spirits 
     plants, bonded wine cellars, etc.).
       (B) Subpart B (relating to brewer).
       (C) Subpart D (relating to wholesale dealers) (other than 
     sections 5114 and 5116).
       (D) Subpart E (relating to retail dealers) (other than 
     section 5124).
       (E) Subpart G (relating to general provisions) (other than 
     sections 5142, 5143, 5145, and 5146).
       (2) Nonbeverage domestic drawback.--Section 5131 is amended 
     by striking ``, on payment of a special tax per annum,''.
       (3) Industrial use of distilled spirits.--Section 5276 is 
     hereby repealed.
       (b) Conforming Amendments.--
       (1)(A) The heading for part II of subchapter A of chapter 
     51 and the table of subparts for such part are amended to 
     read as follows:

                  ``PART II--MISCELLANEOUS PROVISIONS

``Subpart A. Manufacturers of stills.
``Subpart B. Nonbeverage domestic drawback claimants.
``Subpart C. Recordkeeping by dealers.
``Subpart D. Other provisions.''.

       (B) The table of parts for such subchapter A is amended by 
     striking the item relating to part II and inserting the 
     following new item:

``Part II. Miscellaneous provisions.''.

       (2) Subpart C of part II of such subchapter (relating to 
     manufacturers of stills) is redesignated as subpart A.
       (3)(A) Subpart F of such part II (relating to nonbeverage 
     domestic drawback claimants), as amended by paragraph (5), is 
     redesignated as subpart B and sections 5131 through 5134 are 
     redesignated as sections 5111 through 5114, respectively.
       (B) The table of sections for such subpart B, as so 
     redesignated, is amended--
       (i) by redesignating the items relating to sections 5131 
     through 5134 as relating to sections 5111 through 5114, 
     respectively, and
       (ii) by striking ``and rate of tax'' in the item relating 
     to section 5111, as so redesignated.
       (C) Section 5111, as redesignated by subparagraph (A), is 
     amended--
       (i) by striking ``AND RATE OF TAX'' in the section heading,
       (ii) by striking ``(a) Eligibility for Drawback.--'', and
       (iii) by striking subsection (b).
       (4) Part II of subchapter A of chapter 51 is amended by 
     adding after subpart B, as redesignated by paragraph (3), the 
     following new subpart:

                 ``Subpart C--Recordkeeping by Dealers

``Sec. 5121. Recordkeeping by wholesale dealers.
``Sec. 5122. Recordkeeping by retail dealers.
``Sec. 5123. Preservation and inspection of records, and entry of 
              premises for inspection.''.

       (5)(A) Section 5114 (relating to records) is moved to 
     subpart C of such part II and inserted after the table of 
     sections for such subpart.
       (B) Section 5114 is amended--
       (i) by striking the section heading and inserting the 
     following new heading:

     ``SEC. 5121. RECORDKEEPING BY WHOLESALE DEALERS.'',

     and
       (ii) by redesignating subsection (c) as subsection (d) and 
     by inserting after subsection (b) the following new 
     subsection:
       ``(c) Wholesale Dealers.--For purposes of this part--
       ``(1) Wholesale dealer in liquors.--The term `wholesale 
     dealer in liquors' means any dealer (other than a wholesale 
     dealer in beer) who sells, or offers for sale, distilled 
     spirits, wines, or beer, to another dealer.
       ``(2) Wholesale dealer in beer.--The term `wholesale dealer 
     in beer' means any dealer who sells, or offers for sale, 
     beer, but not distilled spirits or wines, to another dealer.
       ``(3) Dealer.--The term `dealer' means any person who 
     sells, or offers for sale, any distilled spirits, wines, or 
     beer.
       ``(4) Presumption in case of sale of 20 wine gallons or 
     more.--The sale, or offer for sale, of distilled spirits, 
     wines, or beer, in quantities of 20 wine gallons or more to 
     the same person at the same time, shall be presumptive 
     evidence that the person making such sale, or offer for sale, 
     is engaged in or carrying on the business of a wholesale 
     dealer in liquors or a wholesale dealer in beer, as the case 
     may be. Such presumption may be overcome by evidence 
     satisfactorily showing that such sale, or offer for sale, was 
     made to a person other than a dealer.''.
       (C) Paragraph (3) of section 5121(d), as so redesignated, 
     is amended by striking ``section 5146'' and inserting 
     ``section 5123''.
       (6)(A) Section 5124 (relating to records) is moved to 
     subpart C of part II of subchapter A of chapter 51 and 
     inserted after section 5121.
       (B) Section 5124 is amended--
       (i) by striking the section heading and inserting the 
     following new heading:

     ``SEC. 5122. RECORDKEEPING BY RETAIL DEALERS.'',

       (ii) by striking ``section 5146'' in subsection (c) and 
     inserting ``section 5123'', and
       (iii) by redesignating subsection (c) as subsection (d) and 
     inserting after subsection (b) the following new subsection:
       ``(c) Retail Dealers.--For purposes of this section--
       ``(1) Retail dealer in liquors.--The term `retail dealer in 
     liquors' means any dealer (other than a retail dealer in 
     beer) who sells, or offers for sale, distilled spirits, 
     wines, or beer, to any person other than a dealer.
       ``(2) Retail dealer in beer.--The term `retail dealer in 
     beer' means any dealer who sells, or offers for sale, beer, 
     but not distilled spirits or wines, to any person other than 
     a dealer.
       ``(3) Dealer.--The term `dealer' has the meaning given such 
     term by section 5121(c)(3).''.
       (7) Section 5146 is moved to subpart C of part II of 
     subchapter A of chapter 51, inserted after section 5122, and 
     redesignated as section 5123.
       (8) Part II of subchapter A of chapter 51 is amended by 
     inserting after subpart C the following new subpart:

                     ``Subpart D--Other Provisions

``Sec. 5131. Packaging distilled spirits for industrial uses.
``Sec. 5132. Prohibited purchases by dealers.''.

       (9) Section 5116 is moved to subpart D of part II of 
     subchapter A of chapter 51, inserted after the table of 
     sections, redesignated as section 5131, and amended by 
     inserting ``(as defined in section 5121(c))'' after 
     ``dealer'' in subsection (a).
       (10) Subpart D of part II of subchapter A of chapter 51 is 
     amended by adding at the end the following new section:

     ``SEC. 5132. PROHIBITED PURCHASES BY DEALERS.

       ``(a) In General.--Except as provided in regulations 
     prescribed by the Secretary, it shall be unlawful for a 
     dealer to purchase distilled spirits from any person other 
     than a wholesale dealer in liquors who is required to keep 
     the records prescribed by section 5121.
       ``(b) Penalty and Forfeiture.--

  ``For penalty and forfeiture provisions applicable to violations of 
subsection (a), see sections 5687 and 7302.''.


[[Page H10916]]


       (11) Subsection (b) of section 5002 is amended--
       (A) by striking ``section 5112(a)'' and inserting ``section 
     5121(c)(3)'',
       (B) by striking ``section 5112'' and inserting ``section 
     5121(c)'', and
       (C) by striking ``section 5122'' and inserting ``section 
     5122(c)''.
       (12) Subparagraph (A) of section 5010(c)(2) is amended by 
     striking ``section 5134'' and inserting ``section 5114''.
       (13) Subsection (d) of section 5052 is amended to read as 
     follows:
       ``(d) Brewer.--For purposes of this chapter, the term 
     `brewer' means any person who brews beer or produces beer for 
     sale. Such term shall not include any person who produces 
     only beer exempt from tax under section 5053(e).''.
       (14) The text of section 5182 is amended to read as 
     follows:

  ``For provisions requiring recordkeeping by wholesale liquor dealers, 
see section 5112, and by retail liquor dealers, see section 5122.''.

       (15) Subsection (b) of section 5402 is amended by striking 
     ``section 5092'' and inserting ``section 5052(d)''.
       (16) Section 5671 is amended by striking ``or 5091''.
       (17)(A) Part V of subchapter J of chapter 51 is hereby 
     repealed.
       (B) The table of parts for such subchapter J is amended by 
     striking the item relating to part V.
       (18)(A) Sections 5142, 5143, and 5145 are moved to 
     subchapter D of chapter 52, inserted after section 5731, 
     redesignated as sections 5732, 5733, and 5734, respectively, 
     and amended--
       (i) by striking ``this part'' each place it appears and 
     inserting ``this subchapter'', and
       (ii) by striking ``this subpart'' in section 5732(c)(2) (as 
     so redesignated) and inserting ``this subchapter''.
       (B) Section 5732, as redesignated by subparagraph (A), is 
     amended by striking ``(except the tax imposed by section 
     5131)'' each place it appears.
       (C) Subsection (c) of section 5733, as redesignated by 
     subparagraph (A), is amended by striking paragraph (2) and by 
     redesignating paragraph (3) as paragraph (2).
       (D) The table of sections for subchapter D of chapter 52 is 
     amended by adding at the end thereof the following:

``Sec. 5732. Payment of tax.
``Sec. 5733. Provisions relating to liability for occupational taxes.
``Sec. 5734. Application of State laws.''.

       (E) Section 5731 is amended by striking subsection (c) and 
     by redesignating subsection (d) as subsection (c).
       (19) Subsection (c) of section 6071 is amended by striking 
     ``section 5142'' and inserting ``section 5732''.
       (20) Paragraph (1) of section 7652(g) is amended--
       (A) by striking ``subpart F'' and inserting ``subpart B'', 
     and
       (B) by striking ``section 5131(a)'' and inserting ``section 
     5111(a)''.
       (21) The table of sections for subchapter D of chapter 51 
     is amended by striking the item relating to section 5276.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on July 1, 2001, but shall not apply to 
     taxes imposed for periods before such date.

     SEC. 209. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN 
                   MORTGAGE OBLIGATIONS.

       (a) In General.--Paragraph (1) of section 108(a) (relating 
     to exclusion from gross income) is amended by striking ``or'' 
     at the end of both subparagraphs (A) and (C), by striking the 
     period at the end of subparagraph (D) and inserting ``, or'', 
     and by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) in the case of an individual, the indebtedness 
     discharged is qualified residential indebtedness.''.
       (b) Qualified Residential Indebtedness.--Section 108 
     (relating to discharge of indebtedness) is amended by adding 
     at the end the following new subsection:
       ``(h) Qualified Residential Indebtedness.--
       ``(1) Limitations.--The amount excluded under subparagraph 
     (E) of subsection (a)(1) with respect to any qualified 
     residential indebtedness shall not exceed the excess (if any) 
     of--
       ``(A) the outstanding principal amount of such indebtedness 
     (immediately before the discharge), over
       ``(B) the sum of--
       ``(i) the amount realized from the sale of the real 
     property securing such indebtedness reduced by the cost of 
     such sale, and
       ``(ii) the outstanding principal amount of any other 
     indebtedness secured by such property.
       ``(2) Qualified residential indebtedness.--
       ``(A) In general.--The term `qualified residential 
     indebtedness' means indebtedness which--
       ``(i) was incurred or assumed by the taxpayer in connection 
     with real property used as the principal residence (within 
     the meaning of section 121) of the taxpayer and is secured by 
     such real property,
       ``(ii) was incurred or assumed to acquire, construct, 
     reconstruct, or substantially improve such real property, and
       ``(iii) with respect to which such taxpayer makes an 
     election to have this paragraph apply.
       ``(B) Refinanced indebtedness.--Such term shall include 
     indebtedness resulting from the refinancing of indebtedness 
     under subparagraph (A)(ii), but only to the extent the amount 
     of the indebtedness resulting from such refinancing does not 
     exceed the amount of the refinanced indebtedness.
       ``(C) Exceptions.--Such term shall not include qualified 
     farm indebtedness or qualified real property business 
     indebtedness.''.
       (c) Conforming Amendments.--
       (1) Paragraph (2) of section 108(a) is amended--
       (A) in subparagraph (A) by striking ``and (D)'' and 
     inserting ``(D), and (E)'', and
       (B) by amending subparagraph (B) to read as follows:
       ``(B) Insolvency exclusion takes precedence over qualified 
     farm exclusion, qualified real property business exclusion, 
     and qualified residential indebtedness exclusion.--
     Subparagraphs (C), (D), and (E) of paragraph (1) shall not 
     apply to a discharge to the extent the taxpayer is 
     insolvent.''.
       (2) Paragraph (1) of section 108(b) is amended by striking 
     ``or (C)'' and inserting ``(C), or (E)''.
       (3) Subsection (c) of section 121 is amended by adding at 
     the end the following new paragraph:
       ``(3) Special rule relating to discharge of indebtedness.--
     The amount of gain which (but for this paragraph) would be 
     excluded from gross income under subsection (a) with respect 
     to a principal residence shall be reduced by the amount 
     excluded from gross income under section 108(a)(1)(E) with 
     respect to such residence.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to discharges after December 31, 2000.

     SEC. 210. CLARIFICATION OF CASH ACCOUNTING RULES FOR SMALL 
                   BUSINESS.

       (a) Cash Accounting Permitted.--Section 446 (relating to 
     general rule for methods of accounting) is amended by adding 
     at the end the following new subsection:
       ``(g) Small Business Taxpayers Permitted To Use Cash 
     Accounting Method Without Limitation.--
       ``(1) In general.--Notwithstanding any other provision of 
     this title, an eligible taxpayer shall not be required to use 
     an accrual method of accounting for any taxable year.
       ``(2) Eligible taxpayer.--For purposes of this subsection--
       ``(A) In general.--A taxpayer is an eligible taxpayer with 
     respect to any taxable year if, for all prior taxable years 
     beginning after October 31, 1999, the taxpayer (or any 
     predecessor) met the gross receipts test of subparagraph (B).
       ``(B) Gross receipts test.--A taxpayer meets the gross 
     receipts test of this subparagraph for any prior taxable year 
     if the average annual gross receipts of the taxpayer (or any 
     predecessor) for the 3-taxable-year period ending with such 
     prior taxable year does not exceed $2,500,000. The rules of 
     paragraphs (2) and (3) of section 448(c) shall apply for 
     purposes of the preceding sentence.''
       (b) Clarification of Inventory Rules for Small Business.--
     Section 471 (relating to general rule for inventories) is 
     amended by redesignating subsection (c) as subsection (d) and 
     by inserting after subsection (b) the following new 
     subsection:
       ``(c) Small Business Taxpayers Not Required To Use 
     Inventories.--
       ``(1) In general.--An eligible taxpayer shall not be 
     required to use inventories under this section for a taxable 
     year.
       ``(2) Treatment of taxpayers not using inventories.--If an 
     eligible taxpayer elects not to use inventories with respect 
     to any property for any taxable year beginning after the date 
     of the enactment of this section, such property shall be 
     treated as a material or supply which is not incidental.
       ``(3) Eligible taxpayer.--For purposes of this subsection, 
     the term `eligible taxpayer' has the meaning given such term 
     by section 446(g)(2).''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
       (2) Change in method of accounting.--In the case of any 
     taxpayer required by the amendments made by this section to 
     change its method of accounting for any taxable year--
       (A) such change shall be treated as initiated by the 
     taxpayer,
       (B) such change shall be treated as made with the consent 
     of the Secretary of the Treasury, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481 of the 
     Internal Revenue Code of 1986 shall be taken into account 
     over a period (not greater than 4 taxable years) beginning 
     with such taxable year.

     SEC. 211. AMENDMENTS RELATING TO DEMAND DEPOSIT ACCOUNTS AT 
                   DEPOSITORY INSTITUTIONS.

       (a) Interest-Bearing Transaction Accounts Authorized.--
       (1) Federal reserve act.--Section 19(i) of the Federal 
     Reserve Act (12 U.S.C. 371a) is amended by inserting at the 
     end the following: ``Notwithstanding any other provision of 
     this section, a member bank may permit the owner of any 
     deposit, any account which is a deposit, or any account on 
     which interest or dividends are paid to make up to 24 
     transfers per month (or such greater number as the Board may 
     determine by rule or order), for any purpose, to a demand 
     deposit account of the owner in the same institution. With 
     respect to an escrow account maintained in connection with a 
     loan, a lender or servicer shall pay interest on such account 
     only if such payments are required by contract between the 
     lender or servicer and the borrower, or a specific statutory 
     provision of the law of the State in which the security 
     property is located requires the lender or servicer to make 
     such payments. Nothing in this subsection shall be construed 
     to prevent an account offered pursuant to this subsection 
     from being considered a transaction account for purposes of 
     this Act.''.
       (2) Home owners' loan act.--
       (A) In general.--Section 5(b)(1) of the Home Owners' Loan 
     Act (12 U.S.C. 1464 (b)(1)) is amended by adding at the end 
     the following new subparagraph:
       ``(G) Transfers.--Notwithstanding any other provision of 
     this paragraph, a Federal savings

[[Page H10917]]

     association may permit the owner of any deposit or share, any 
     account which is a deposit or share, or any account on which 
     interest or dividends are paid to make up to 24 transfers per 
     month (or such greater number as the Board of Governors of 
     the Federal Reserve System may determine by rule or order 
     under section 19(i) to be permissible for member banks), for 
     any purpose, to a demand deposit account of the owner in the 
     same institution. With respect to an escrow account 
     maintained in connection with a loan, a lender or servicer 
     shall pay interest on such account only if such payments are 
     required by contract between the lender or servicer and the 
     borrower, or a specific statutory provision of the law of the 
     State in which the security property is located requires the 
     lender or servicer to make such payments. Nothing in this 
     subsection shall be construed to prevent an account offered 
     pursuant to this subsection from being considered a 
     transaction account (as defined in section 19(b) of the 
     Federal Reserve Act) for purposes of the Federal Reserve 
     Act.''.
       (B) Repeal.--Effective on at the end of the 2-year period 
     beginning on the date of enactment of this Act, section 
     5(b)(1) of the Home Owners' Loan Act (12 U.S.C. 1464 (b)(1)) 
     is amended by striking subparagraph (G).
       (3) Federal deposit insurance act.--Section 18(g) of the 
     Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended 
     by adding at the end the following new paragraph:
       ``(3) Transfers.--Notwithstanding any other provision of 
     this subsection, an insured nonmember bank or insured State 
     savings association may permit the owner of any deposit or 
     share, any account which is a deposit or share, or any 
     account on which interest or dividends are paid to make up to 
     24 transfers per month (or such greater number as the Board 
     of Governors of the Federal Reserve System may determine by 
     rule or order under section 19(i) to be permissible for 
     member banks), for any purpose, to a demand deposit account 
     of the owner in the same institution. With respect to an 
     escrow account maintained in connection with a loan, a lender 
     or servicer shall pay interest on such account only if such 
     payments are required by contract between the lender or 
     servicer and the borrower, or a specific statutory provision 
     of the law of the State in which the security property is 
     located requires the lender or servicer to make such 
     payments. Nothing in this subsection shall be construed to 
     prevent an account offered pursuant to this subsection from 
     being considered a transaction account (as defined in section 
     19(b) of the Federal Reserve Act) for purposes of the Federal 
     Reserve Act.''.
       (b) Repeal of Prohibition on Payment of Interest on Demand 
     Deposits.--
       (1) Federal reserve act.--Section 19(i) of the Federal 
     Reserve Act (12 U.S.C. 371a) is amended to read as follows:
       ``(i) [Repealed]''.
       (2) Home owners' loan act.--The 1st sentence of section 
     5(b)(1)(B) of the Home Owners' Loan Act (12 U.S.C. 
     1464(b)(1)(B)) is amended by striking ``savings association 
     may not--'' and all that follows through ``(ii) permit any'' 
     and inserting ``savings association may not permit any''.
       (3) Federal deposit insurance act.--Section 18(g) of the 
     Federal Deposit Insurance Act (12 U.S.C. 1828(g)) is amended 
     to read as follows:
       ``(g) [Repealed]''.
       (c) Effective Date.--The amendments made by subsection (b) 
     shall take effect at the end of the 2-year period beginning 
     on the date of the enactment of this Act.
  TITLE III--HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

     SEC. 301. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS 
                   OF SELF-EMPLOYED INDIVIDUALS.

       (a) In General.--Paragraph (1) of section 162(l) is amended 
     to read as follows:
       ``(1) Allowance of deduction.--In the case of an individual 
     who is an employee within the meaning of section 401(c)(1), 
     there shall be allowed as a deduction under this section an 
     amount equal to 100 percent of the amount paid during the 
     taxable year for insurance which constitutes medical care for 
     the taxpayer and the taxpayer's spouse and dependents.''.
       (b) Clarification of Limitations on Other Coverage.--The 
     first sentence of section 162(l)(2)(B) is amended to read as 
     follows: ``Paragraph (1) shall not apply to any taxpayer for 
     any calendar month for which the taxpayer participates in any 
     subsidized health plan maintained by any employer (other than 
     an employer described in section 401(c)(4)) of the taxpayer 
     or the spouse of the taxpayer.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 302. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE 
                   COSTS OF INDIVIDUALS NOT PARTICIPATING IN 
                   EMPLOYER-SUBSIDIZED HEALTH PLANS.

       (a) In General.--Part VII of subchapter B of chapter 1 is 
     amended by redesignating section 222 as section 223 and by 
     inserting after section 221 the following new section:

     ``SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE COSTS.

       ``(a) In General.--In the case of an individual, there 
     shall be allowed as a deduction an amount equal to the 
     applicable percentage of the amount paid during the taxable 
     year for insurance which constitutes medical care for the 
     taxpayer and the taxpayer's spouse and dependents.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2001, 2002, and 2003.........................................25  ....

  2004.........................................................35  ....

  2005.........................................................65  ....

  2006 and thereafter........................................100.  ....

       ``(c) Limitation Based on Other Coverage.--
       ``(1) Coverage under certain subsidized employer plans.--
       ``(A) In general.--Subsection (a) shall not apply to any 
     taxpayer for any calendar month for which the taxpayer 
     participates in any health plan maintained by any employer of 
     the taxpayer or of the spouse of the taxpayer if for such 
     month 50 percent or more of the cost of coverage under such 
     plan (determined under section 4980B and without regard to 
     payments made with respect to any coverage described in 
     subsection (e)) is paid or incurred by the employer.
       ``(B) Employer contributions to cafeteria plans, flexible 
     spending arrangements, and medical savings accounts.--
     Employer contributions to a cafeteria plan, a flexible 
     spending or similar arrangement, or a medical savings account 
     which are excluded from gross income under section 106 shall 
     be treated for purposes of subparagraph (A) as paid by the 
     employer.
       ``(C) Aggregation of plans of employer.--A health plan 
     which is not otherwise described in subparagraph (A) shall be 
     treated as described in such subparagraph if such plan would 
     be so described if all health plans of persons treated as a 
     single employer under subsection (b), (c), (m), or (o) of 
     section 414 were treated as one health plan.
       ``(D) Separate application to health insurance and long-
     term care insurance.--Subparagraphs (A) and (C) shall be 
     applied separately with respect to--
       ``(i) plans which include primarily coverage for qualified 
     long-term care services or are qualified long-term care 
     insurance contracts, and
       ``(ii) plans which do not include such coverage and are not 
     such contracts.
       ``(2) Coverage under certain federal programs.--
       ``(A) In general.--Subsection (a) shall not apply to any 
     amount paid for any coverage for an individual for any 
     calendar month if, as of the first day of such month, the 
     individual is covered under any medical care program 
     described in--
       ``(i) title XVIII, XIX, or XXI of the Social Security Act,
       ``(ii) chapter 55 of title 10, United States Code,
       ``(iii) chapter 17 of title 38, United States Code,
       ``(iv) chapter 89 of title 5, United States Code, or
       ``(v) the Indian Health Care Improvement Act.
       ``(B) Exceptions.--
       ``(i) Qualified long-term care.--Subparagraph (A) shall not 
     apply to amounts paid for coverage under a qualified long-
     term care insurance contract.
       ``(ii) Continuation coverage of fehbp.--Subparagraph 
     (A)(iv) shall not apply to coverage which is comparable to 
     continuation coverage under section 4980B.
       ``(d) Long-Term Care Deduction Limited to Qualified Long-
     Term Care Insurance Contracts.--In the case of a qualified 
     long-term care insurance contract, only eligible long-term 
     care premiums (as defined in section 213(d)(10)) may be taken 
     into account under subsection (a).
       ``(e) Deduction Not Available for Payment of Ancillary 
     Coverage Premiums.--Any amount paid as a premium for 
     insurance which provides for--
       ``(1) coverage for accidents, disability, dental care, 
     vision care, or a specified illness, or
       ``(2) making payments of a fixed amount per day (or other 
     period) by reason of being hospitalized,
     shall not be taken into account under subsection (a).
       ``(f ) Special Rules.--
       ``(1) Coordination with deduction for health insurance 
     costs of self-employed individuals.--The amount taken into 
     account by the taxpayer in computing the deduction under 
     section 162(l) shall not be taken into account under this 
     section.
       ``(2) Coordination with medical expense deduction.--The 
     amount taken into account by the taxpayer in computing the 
     deduction under this section shall not be taken into account 
     under section 213.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section, 
     including regulations requiring employers to report to their 
     employees and the Secretary such information as the Secretary 
     determines to be appropriate.''.
       (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--Subsection (a) of section 62 is amended by 
     inserting after paragraph (17) the following new item:
       ``(18) Health and long-term care insurance costs.--The 
     deduction allowed by section 222.''.
       (c) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 222. Health and long-term care insurance costs.
``Sec. 223. Cross reference.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 303. 2-YEAR EXTENSION OF AVAILABILITY OF MEDICAL SAVINGS 
                   ACCOUNTS.

       (a) In General.--Paragraphs (2) and (3)(B) of section 
     220(i) (defining cut-off year) are each amended by striking 
     ``2000'' each place it appears and inserting ``2002''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 220(j) is amended--

[[Page H10918]]

       (A) by striking ``1998 or 1999'' each place it appears and 
     inserting ``1998, 1999, 2000, or 2001'', and
       (B) by striking ``600,000 (750,000 in the case of 1999)'' 
     and inserting ``750,000 (600,000 in the case of 1998)''.
       (2) Subparagraph (A) of section 220(j)(4) is amended by 
     striking ``, 1998, and 1999'' and inserting ``and of each 
     calendar year after 1997 and before 2002''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 304. ADDITIONAL CONSUMER PROTECTIONS FOR LONG-TERM CARE 
                   INSURANCE.

       (a) Additional Protections Applicable to Long-Term Care 
     Insurance.--Subparagraph (A) of section 7702B(g)(2) (relating 
     to requirements of model regulation and Act) is amended to 
     read as follows:
       ``(A) In general.--The requirements of this paragraph are 
     met with respect to any contract if such contract meets--
       ``(i) Model regulation.--The following requirements of the 
     model regulation:

       ``(I) Section 6A (relating to guaranteed renewal or 
     noncancellability), and the requirements of section 6B of the 
     model Act relating to such section 6A.
       ``(II) Section 6B (relating to prohibitions on limitations 
     and exclusions).
       ``(III) Section 6C (relating to extension of benefits).
       ``(IV) Section 6D (relating to continuation or conversion 
     of coverage).
       ``(V) Section 6E (relating to discontinuance and 
     replacement of policies).
       ``(VI) Section 7 (relating to unintentional lapse).
       ``(VII) Section 8 (relating to disclosure), other than 
     section 8F thereof.
       ``(VIII) Section 11 (relating to prohibitions against post-
     claims underwriting).
       ``(IX) Section 12 (relating to minimum standards).
       ``(X) Section 13 (relating to requirement to offer 
     inflation protection), except that any requirement for a 
     signature on a rejection of inflation protection shall permit 
     the signature to be on an application or on a separate form.
       ``(XI) Section 25 (relating to prohibition against 
     preexisting conditions and probationary periods in 
     replacement policies or certificates).
       ``(XII) The provisions of section 26 relating to contingent 
     nonforfeiture benefits, if the policyholder declines the 
     offer of a nonforfeiture provision described in paragraph 
     (4).
       ``(ii) Model act.--The following requirements of the model 
     Act:

       ``(I) Section 6C (relating to preexisting conditions).
       ``(II) Section 6D (relating to prior hospitalization).
       ``(III) The provisions of section 8 relating to contingent 
     nonforfeiture benefits, if the policyholder declines the 
     offer of a nonforfeiture provision described in paragraph 
     (4).

       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Model provisions.--The terms `model regulation' and 
     `model Act' mean the long-term care insurance model 
     regulation, and the long-term care insurance model Act, 
     respectively, promulgated by the National Association of 
     Insurance Commissioners (as adopted as of September 2000).
       ``(ii) Coordination.--Any provision of the model regulation 
     or model Act listed under clause (i) or (ii) of subparagraph 
     (A) shall be treated as including any other provision of such 
     regulation or Act necessary to implement the provision.
       ``(iii) Determination.--For purposes of this section and 
     section 4980C, the determination of whether any requirement 
     of a model regulation or the model Act has been met shall be 
     made by the Secretary.''
       (b) Excise Tax.--Paragraph (1) of section 4980C(c) 
     (relating to requirements of model provisions) is amended to 
     read as follows:
       ``(1) Requirements of model provisions.--
       ``(A) Model regulation.--The following requirements of the 
     model regulation must be met:
       ``(i) Section 9 (relating to required disclosure of rating 
     practices to consumer).''
       ``(ii) Section 14 (relating to application forms and 
     replacement coverage).
       ``(iii) Section 15 (relating to reporting requirements), 
     except that the issuer shall also report at least annually 
     the number of claims denied during the reporting period for 
     each class of business (expressed as a percentage of claims 
     denied), other than claims denied for failure to meet the 
     waiting period or because of any applicable preexisting 
     condition.
       ``(iv) Section 22 (relating to filing requirements for 
     marketing).
       ``(v) Section 23 (relating to standards for marketing), 
     including inaccurate completion of medical histories, other 
     than paragraphs (1), (6), and (9) of section 23C, except 
     that--

       ``(I) in addition to such requirements, no person shall, in 
     selling or offering to sell a qualified long-term care 
     insurance contract, misrepresent a material fact; and
       ``(II) no such requirements shall include a requirement to 
     inquire or identify whether a prospective applicant or 
     enrollee for long-term care insurance has accident and 
     sickness insurance.

       ``(vi) Section 24 (relating to suitability).
       ``(vii) Section 29 (relating to standard format outline of 
     coverage).
       ``(viii) Section 30 (relating to requirement to deliver 
     shopper's guide).
     The requirements referred to in clause (vi) shall not include 
     those portions of the personal worksheet described in 
     Appendix B relating to consumer protection requirements not 
     imposed by section 4980C or 7702B.
       ``(B) Model act.--The following requirements of the model 
     Act must be met:
       ``(i) Section 6F (relating to right to return), except that 
     such section shall also apply to denials of applications and 
     any refund shall be made within 30 days of the return or 
     denial.
       ``(ii) Section 6G (relating to outline of coverage).
       ``(iii) Section 6H (relating to requirements for 
     certificates under group plans).
       ``(iv) Section 6I (relating to policy summary).
       ``(v) Section 6J (relating to monthly reports on 
     accelerated death benefits).
       ``(vi) Section 7 (relating to incontestability period).
       ``(C) Definitions.--For purposes of this paragraph, the 
     terms `model regulation' and `model Act' have the meanings 
     given such terms by section 7702B(g)(2)(B).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to policies issued more than 1 year after the 
     date of the enactment of this Act.

     SEC. 305. DEDUCTION FOR PROVIDING LONG-TERM CARE IN THE HOME 
                   TO HOUSEHOLD MEMBERS.

       (a) In General.--Part VII of subchapter B of chapter 1 is 
     amended by redesignating section 223 as section 224 and by 
     inserting after section 222 the following new section:

     ``SEC. 223. PROVISION OF LONG-TERM CARE IN THE HOME TO 
                   HOUSEHOLD MEMBERS.

       ``(a) Deduction Allowed.--
       ``(1) In general.--There shall be allowed as a deduction 
     for the taxable year an amount equal to the applicable amount 
     multiplied by the number of qualified family members of the 
     taxpayer for the taxable year.
       ``(2) Applicable amount.--For purposes of paragraph (1), 
     the applicable amount for a taxable year shall be the amount 
     determined in accordance with the following table:

    ``For taxable years                                  The applicable
      beginning in:                                        amount is:  
      2001..................................................$3,000 .

      2002..................................................$4,000 .

      2003..................................................$5,000 .

      2004..................................................$6,000 .

      2005..................................................$7,000 .

      2006..................................................$8,000 .

      2007..................................................$9,000 .

      2008 and thereafter..................................$10,000..

       ``(b) Limitations.--
       ``(1) Reduction for amounts received under long-term care 
     insurance policy.--The amount of the deduction allowable 
     under subsection (a) with respect to a qualified family 
     member shall be reduced (but not below zero) by the amount 
     received for the taxable year under a long-term care 
     insurance policy (whether or not such policy is a qualified 
     long-term care insurance contract under section 7702B) with 
     respect to which the insured is the qualified family member.
       ``(2) Phaseout.--The amount of the deduction allowable 
     under subsection (a) (after the application of paragraph (1)) 
     shall be reduced in the same manner as the exemption amount 
     is reduced under section 151(d)(3).
       ``(c) Qualified family member.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified family member' 
     means, with respect to any taxable year, any individual--
       ``(A) who is--
       ``(i) the taxpayer's spouse, or
       ``(ii) an individual who bears a relationship to the 
     taxpayer described in any of paragraphs (1) through (8) of 
     section 152(a),
       ``(B) who is a member for the entire taxable year of the 
     household maintained by the taxpayer,
       ``(C) whose gross income for the calendar year in which the 
     taxable year of the taxpayer begins is less than the sum of--
       ``(i) the exemption amount (as defined in section 151(d)), 
     and
       ``(ii) the standard deduction, and
       ``(D) who has been certified, before the due date for 
     filing the return of tax for the taxable year (without 
     extensions), by a physician (as defined in section 1861(r)(1) 
     of the Social Security Act) as being an individual described 
     in paragraph (3) for a period--
       ``(i) which is at least 180 consecutive days, and
       ``(ii) a portion of which occurs within the taxable year.
       ``(2) Special rules.--
       ``(A) Frequency of certification.--The term `qualified 
     family member' shall not include any individual otherwise 
     meeting the requirements of paragraph (1)(D) unless the 
     certification is made within the 39\1/2\ month period ending 
     on the due date (or such other period as the Secretary 
     prescribes).
       ``(B) Gross income test not to apply to certain 
     individuals.--Paragraph (1)(C) shall not apply to--
       ``(i) the spouse of the taxpayer,
       ``(ii) any child of the taxpayer described in section 
     151(c)(1)(B), and
       ``(iii) any gross income which is not taken into account 
     under paragraph (1)(B) of section 151(c) by reason of 
     paragraph (5) thereof.
       ``(3) Individuals with long-term care needs.--An individual 
     is described in this paragraph if the individual meets any of 
     the following requirements:
       ``(A) The individual is at least 6 years of age and--
       ``(i) is unable to perform (without substantial assistance 
     from another individual) at least 3 activities of daily 
     living (as defined in section 7702B(c)(2)(B)) due to a loss 
     of functional capacity, or
       ``(ii) requires substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment, and

       ``(I) is unable to perform, without reminding or cuing 
     assistance, at least 1 activity of daily living (as so 
     defined), or
       ``(II) to the extent provided in regulations prescribed by 
     the Secretary (in consultation with

[[Page H10919]]

     the Secretary of Health and Human Services), is unable to 
     engage in age appropriate activities.

       ``(B) The individual is at least 2 but not 6 years of age 
     and is unable due to a loss of functional capacity to perform 
     (without substantial assistance from another individual) at 
     least 2 of the following activities: eating, transferring, or 
     mobility.
       ``(C) The individual is under 2 years of age and requires 
     specific durable medical equipment by reason of a severe 
     health condition or requires a skilled practitioner trained 
     to address the individual's condition to be available if the 
     individual's parents or guardians are absent.
       ``(d) Special Rules.--
       ``(1) Identification requirement.--No deduction shall be 
     allowed under this section to a taxpayer with respect to any 
     qualified family member unless the taxpayer includes the name 
     and taxpayer identification number of such member, and the 
     identification number of the physician certifying such 
     member, on the return of tax for the taxable year.
       ``(2) Taxable year must be full taxable year.--No deduction 
     shall be allowable under this section in the case of a 
     taxable year covering a period of less than 12 months, 
     except that in the case of a taxable year closed by the 
     death of a taxpayer a ratable portion of the deduction 
     shall be allowable.
       ``(3) Special rules.--Rules similar to the rules of 
     paragraphs (1), (2), (3), (4), and (5) of section 21(e) shall 
     apply for purposes of this subsection.''.
       (b) Deduction Allowable Whether or Not Taxpayer Itemizes 
     Other Deductions.--
       (1) Subsection (b) of section 63 is amended by striking 
     ``and'' at the end of paragraph (1), by striking the period 
     at the end of paragraph (2) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(3) the deduction allowed by section 223.''
       (2) Subsection (d) of section 63 is amended by striking 
     ``and'' at the end of paragraph (1), by striking the period 
     at the end of paragraph (2) and inserting ``, and'', and by 
     adding at the end the following new paragraph:
       ``(3) the deduction allowed by section 223.''
       (c) Conforming Amendments.--
       (1) Section 6213(g)(2) is amended by striking ``and'' at 
     the end of subparagraph (K), by striking the period at the 
     end of subparagraph (L) and inserting ``, and'', and by 
     inserting after subparagraph (L) the following new 
     subparagraph:
       ``(M) an omission of a correct TIN or physician 
     identification number required under section 223(d)(1) 
     (relating to deduction for provision of long-term care in the 
     home to household members) to be included on a return.''
       (2) The table of sections for part VII of subchapter B of 
     chapter 1 is amended by striking the last item and inserting 
     the following new items:

``Sec. 223. Provision of long-term care in the home to household 
              members.
``Sec. 224. Cross reference.''

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.
   TITLE IV--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS

     SEC. 400. SHORT TITLE.

       This title may be cited as the ``Retirement Savings and 
     Pension Coverage Act of 2000''.
               Subtitle A--Individual Retirement Accounts

     SEC. 401. MODIFICATION OF IRA CONTRIBUTION LIMITS.

       (a) Increase in Contribution Limit.--
       (1) In general.--Paragraph (1)(A) of section 219(b) 
     (relating to maximum amount of deduction) is amended by 
     striking ``$2,000'' and inserting ``the deductible amount''.
       (2) Deductible amount.--Section 219(b) is amended by adding 
     at the end the following new paragraph:
       ``(5) Deductible amount.--For purposes of paragraph 
     (1)(A)--
       ``(A) In general.--The deductible amount shall be 
     determined in accordance with the following table:

    ``For taxable years                                  The deductible
      beginning in:                                        amount is:  
      2001..................................................$3,000 .

      2002..................................................$4,000 .

      2003 and thereafter...................................$5,000..

       ``(B) Catch-up contributions for individuals 50 or older.--
       ``(i) In general.--In the case of an individual who has 
     attained the age of 50 before the close of the taxable year, 
     the deductible amount for such taxable year (determined 
     without regard to this subparagraph) shall be increased by 
     the applicable catch-up amount.
       ``(ii) Applicable catch-up amount.--For purposes of clause 
     (i), the applicable catch-up amount shall be the amount 
     determined in accordance with the following table:

    ``For taxable years                         The applicable catch-up
      beginning in:                                        amount is:  
      2001....................................................$500 .

      2002..................................................$1,000 .

      2003 and thereafter...................................$1,500..

       ``(C) Cost-of-living adjustment.--
       ``(i) In general.--In the case of any taxable year 
     beginning in a calendar year after 2003, the $5,000 amount 
     under subparagraph (A) and the $1,500 amount under 
     subparagraph (B) shall each be increased by an amount equal 
     to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 2002' 
     for `calendar year 1992' in subparagraph (B) thereof.

       ``(ii) Rounding rules.--If any amount after adjustment 
     under clause (i) is not a multiple of $500, such amount shall 
     be rounded to the next lower multiple of $500.''.
       (b) Increase in AGI Limits for Active Participants.--
       (1) Joint returns.--The table in clause (i) of section 
     219(g)(3)(B) (relating to applicable dollar amount) is 
     amended to read as follows:

    ``For taxable years                                  The applicable
      beginning in                                       dollar amount:
      calendar year:
      2001.....................................................$56,000 
      2002.....................................................$60,000 
      2003.....................................................$64,000 
      2004.....................................................$68,000 
      2005.....................................................$72,000 
      2006.....................................................$76,000 
      2007 or thereafter....................................$80,000.''.

       (2) Other taxpayers.--Section 219(g)(3)(B) (relating to 
     applicable dollar amount) is amended by striking clauses (ii) 
     and (iii) and inserting the following:
       ``(ii) In the case of any other taxpayer:

    ``For taxable years                                  The applicable
      beginning in                                       dollar amount:
      calendar year:
      2001.....................................................$36,000 
      2002.....................................................$40,000 
      2003.....................................................$44,000 
      2004.....................................................$48,000 
      2005 or thereafter....................................$50,000.''.

       (c) Conforming Amendments.--
       (1) Section 408(a)(1) is amended by striking ``in excess of 
     $2,000 on behalf of any individual'' and inserting ``on 
     behalf of any individual in excess of the amount in effect 
     for such taxable year under section 219(b)(1)(A)''.
       (2) Section 408(b)(2)(B) is amended by striking ``$2,000'' 
     and inserting ``the dollar amount in effect under section 
     219(b)(1)(A)''.
       (3) Section 408(b) is amended by striking ``$2,000'' in the 
     matter following paragraph (4) and inserting ``the dollar 
     amount in effect under section 219(b)(1)(A)''.
       (4) Section 408(j) is amended by striking ``$2,000''.
       (5) Section 408(p)(8) is amended by striking ``$2,000'' and 
     inserting ``the dollar amount in effect under section 
     219(b)(1)(A)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 402. DEEMED IRAS UNDER EMPLOYER PLANS.

       (a) In General.--Section 408 (relating to individual 
     retirement accounts) is amended by redesignating subsection 
     (q) as subsection (r) and by inserting after subsection (p) 
     the following new subsection:
       ``(q) Deemed IRAs Under Qualified Employer Plans.--
       ``(1) General rule.--If--
       ``(A) a qualified employer plan elects to allow employees 
     to make voluntary employee contributions to a separate 
     account or annuity established under the plan, and
       ``(B) under the terms of the qualified employer plan, such 
     account or annuity meets the applicable requirements of this 
     section or section 408A for an individual retirement account 
     or annuity,
     then such account or annuity shall be treated for purposes of 
     this title in the same manner as an individual retirement 
     plan and not as a qualified employer plan (and contributions 
     to such account or annuity as contributions to an individual 
     retirement plan and not to the qualified employer plan). For 
     purposes of subparagraph (B), the requirements of subsection 
     (a)(5) shall not apply.
       ``(2) Special rules for qualified employer plans.--For 
     purposes of this title, a qualified employer plan shall not 
     fail to meet any requirement of this title solely by reason 
     of establishing and maintaining a program described in 
     paragraph (1).
       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Qualified employer plan.--The term `qualified 
     employer plan' has the meaning given such term by section 
     72(p)(4); except such term shall only include an eligible 
     deferred compensation plan (as defined in section 457(b)) 
     which is maintained by an eligible employer described in 
     section 457(e)(1)(A).
       ``(B) Voluntary employee contribution.--The term `voluntary 
     employee contribution' means any contribution (other than a 
     mandatory contribution within the meaning of section 
     411(c)(2)(C))--
       ``(i) which is made by an individual as an employee under a 
     qualified employer plan which allows employees to elect to 
     make contributions described in paragraph (1), and
       ``(ii) with respect to which the individual has designated 
     the contribution as a contribution to which this subsection 
     applies.''.
       (b) Amendment of ERISA.--
       (1) In general.--Section 4 of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1003) is amended by 
     adding at the end the following new subsection:
       ``(c) If a pension plan allows an employee to elect to make 
     voluntary employee contributions to accounts and annuities as 
     provided in section 408(q) of the Internal Revenue Code of 
     1986, such accounts and annuities (and contributions thereto) 
     shall not be treated as part of such plan (or as a separate 
     pension plan) for purposes of any provision of this title 
     other than section 403(c), 404, or 405 (relating to exclusive 
     benefit, and fiduciary and co-fiduciary responsibilities).''.
       (2) Conforming amendment.--Section 4(a) of such Act (29 
     U.S.C. 1003(a)) is amended by inserting ``or (c)'' after 
     ``subsection (b)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2001.

     SEC. 403. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT 
                   ACCOUNTS FOR CHARITABLE PURPOSES.

       (a) In General.--Subsection (d) of section 408 (relating to 
     individual retirement accounts) is

[[Page H10920]]

     amended by adding at the end the following new paragraph:
       ``(8) Distributions for charitable purposes.--
       ``(A) In general.--In the case of a qualified charitable 
     distribution, no amount shall be includible in the gross 
     income of the account holder or beneficiary.
       ``(B) Qualified charitable distribution.--For purposes of 
     this paragraph, the term `qualified charitable distribution' 
     means any distribution from an individual retirement 
     account--
       ``(i) which is made on or after the date that the 
     individual for whose benefit the account is maintained has 
     attained age 70\1/2\, and
       ``(ii) which is a charitable contribution (as defined in 
     section 170(c)) made directly from the account to an 
     organization or entity described in section 170(c).
       ``(C) Denial of deduction.--The amount allowable as a 
     deduction to the taxpayer for the taxable year under section 
     170 (before the application of section 170(b)) for qualified 
     charitable distributions shall be reduced (but not below 
     zero) by the sum of the amounts of the qualified charitable 
     distributions during such year which (but for this paragraph) 
     would have been includible in the gross income of the 
     taxpayer for such year.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 404. MODIFICATION OF AGI LIMITS FOR ROTH IRAS.

       (a) Increase in AGI Limit for Roth IRA Contributions.--
       (1) In general.--Section 408A(c)(3)(C)(ii) (relating to 
     limits based on modified adjusted gross income) is amended to 
     read as follows:
       ``(ii) the applicable dollar amount is--

       ``(I) in the case of a taxpayer filing a joint return, 
     $190,000, and
       ``(II) in the case of any other taxpayer, $95,000.''.

       (2) Phaseout amount.--Clause (ii) of section 408A(c)(3)(A) 
     is amended to read as follows:
       ``(ii) $15,000 ($30,000 in the case of a joint return).''.
       (b) Increase in AGI Limit for Roth IRA Conversions.--
     Section 408A(c)(3)(B) (relating to rollover from IRA) is 
     amended by striking ``relates'' and all that follows and 
     inserting ``relates, the taxpayer's adjusted gross income 
     exceeds $100,000 ($200,000 in the case of a joint return).''.
       (c) Conforming Amendment.--Section 408A(c)(3) is amended by 
     striking subparagraph (D).
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.
                     Subtitle B--Expanding Coverage

     SEC. 411. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

       (a) Defined Benefit Plans.--
       (1) Dollar limit.--
       (A) Subparagraph (A) of section 415(b)(1) (relating to 
     limitation for defined benefit plans) is amended by striking 
     ``$90,000'' and inserting ``$160,000''.
       (B) Subparagraphs (C) and (D) of section 415(b)(2) are each 
     amended by striking ``$90,000'' each place it appears in the 
     headings and the text and inserting ``$160,000''.
       (C) Paragraph (7) of section 415(b) (relating to benefits 
     under certain collectively bargained plans) is amended by 
     striking ``the greater of $68,212 or one-half the amount 
     otherwise applicable for such year under paragraph (1)(A) for 
     `$90,000' '' and inserting ``one-half the amount otherwise 
     applicable for such year under paragraph (1)(A) for 
     `$160,000' ''.
       (2) Limit reduced when benefit begins before age 62.--
     Subparagraph (C) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 62'' and by 
     striking the second sentence.
       (3) Limit increased when benefit begins after age 65.--
     Subparagraph (D) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 65''.
       (4) Cost-of-living adjustments.--Subsection (d) of section 
     415 (related to cost-of-living adjustments) is amended--
       (A) by striking ``$90,000'' in paragraph (1)(A) and 
     inserting ``$160,000''; and
       (B) in paragraph (3)(A)--
       (i) by striking ``$90,000'' in the heading and inserting 
     ``$160,000''; and
       (ii) by striking ``October 1, 1986'' and inserting ``July 
     1, 2000''.
       (5) Conforming amendments.--
       (A) Section 415(b)(2) is amended by striking subparagraph 
     (F).
       (B) Section 415(b)(9) is amended to read as follows:
       ``(9) Special rule for commercial airline pilots.--In the 
     case of any participant who is a commercial airline pilot, 
     if, as of the time of the participant's retirement, 
     regulations prescribed by the Federal Aviation Administration 
     require an individual to separate from service as a 
     commercial airline pilot after attaining any age occurring on 
     or after age 60 and before age 62, paragraph (2)(C) shall be 
     applied by substituting such age for age 62.''.
       (C) Section 415(b)(10)(C)(i) is amended by striking 
     ``applied without regard to paragraph (2)(F)''.
       (b) Defined Contribution Plans.--
       (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
     (relating to limitation for defined contribution plans) is 
     amended by striking ``$30,000'' and inserting ``$40,000''.
       (2) Cost-of-living adjustments.--Subsection (d) of section 
     415 (related to cost-of-living adjustments) is amended--
       (A) by striking ``$30,000'' in paragraph (1)(C) and 
     inserting ``$40,000''; and
       (B) in paragraph (3)(D)--
       (i) by striking ``$30,000'' in the heading and inserting 
     ``$40,000''; and
       (ii) by striking ``October 1, 1993'' and inserting ``July 
     1, 2000''.
       (3) Conforming amendments.--
       (A) In general.--Section 664(g)(3)(E) (relating to plan 
     requirements) is amended by striking ``limitations under 
     section 415(c)(1)`` and inserting ``applicable limitation 
     under paragraph (7)''.
       (B) Applicable limitation.--Section 664(g) (relating to 
     qualified gratuitous transfer of qualified employer 
     securities) is amended by adding at the end the following new 
     paragraph:
       ``(7) Applicable limitation.--
       ``(A) In general.--For purposes of paragraph (3)(E), the 
     applicable limitation under this paragraph with respect to a 
     participant is an amount equal to the lesser of--
       ``(i) $30,000, or
       ``(ii) 25 percent of the participant's compensation (as 
     defined in section 415(c)(3)).
       ``(B) Cost-of-living adjustment.--The Secretary shall 
     adjust annually the $30,000 amount under subparagraph (A)(i) 
     at the same time and in the same manner as under section 
     415(d), except that the base period shall be the calendar 
     quarter beginning October 1, 1993, and any increase under 
     this subparagraph which is not a multiple of $5,000 shall be 
     rounded to the next lowest multiple of $5,000.''.
       (c) Qualified Trusts.--
       (1) Compensation limit.--Sections 401(a)(17), 404(l), 
     408(k), and 505(b)(7) are each amended by striking 
     ``$150,000'' each place it appears and inserting 
     ``$200,000''.
       (2) Base period and rounding of cost-of-living 
     adjustment.--Subparagraph (B) of section 401(a)(17) is 
     amended--
       (A) by striking ``October 1, 1993'' and inserting ``July 1, 
     2000''; and
       (B) by striking ``$10,000'' both places it appears and 
     inserting ``$5,000''.
       (d) Elective Deferrals.--
       (1) In general.--Paragraph (1) of section 402(g) (relating 
     to limitation on exclusion for elective deferrals) is amended 
     to read as follows:
       ``(1) In general.--
       ``(A) Limitation.--Notwithstanding subsections (e)(3) and 
     (h)(1)(B), the elective deferrals of any individual for any 
     taxable year shall be included in such individual's gross 
     income to the extent the amount of such deferrals for the 
     taxable year exceeds the applicable dollar amount.
       ``(B) Applicable dollar amount.--For purposes of 
     subparagraph (A), the applicable dollar amount shall be the 
     amount determined in accordance with the following table:

    ``For taxable years                                  The applicable
      beginning in                                       dollar amount:
      calendar year:
      2001.....................................................$11,000 
      2002.....................................................$12,000 
      2003.....................................................$13,000 
      2004.....................................................$14,000 
      2005 or thereafter....................................$15,000.''.

       (2) Cost-of-living adjustment.--Paragraph (5) of section 
     402(g) is amended to read as follows:
       ``(5) Cost-of-living adjustment.--In the case of taxable 
     years beginning after December 31, 2005, the Secretary shall 
     adjust the $15,000 amount under paragraph (1)(B) at the same 
     time and in the same manner as under section 415(d), except 
     that the base period shall be the calendar quarter beginning 
     July 1, 2004, and any increase under this paragraph which is 
     not a multiple of $500 shall be rounded to the next lowest 
     multiple of $500.''.
       (3) Conforming amendments.--
       (A) Section 402(g) (relating to limitation on exclusion for 
     elective deferrals), as amended by paragraphs (1) and (2), is 
     further amended by striking paragraph (4) and redesignating 
     paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), 
     (5), (6), (7), and (8), respectively.
       (B) Paragraph (2) of section 457(c) is amended by striking 
     ``402(g)(8)(A)(iii)'' and inserting ``402(g)(7)(A)(iii)''.
       (C) Clause (iii) of section 501(c)(18)(D) is amended by 
     striking ``(other than paragraph (4) thereof)''.
       (e) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--
       (1) In general.--Section 457 (relating to deferred 
     compensation plans of State and local governments and tax-
     exempt organizations) is amended--
       (A) in subsections (b)(2)(A) and (c)(1) by striking 
     ``$7,500'' each place it appears and inserting ``the 
     applicable dollar amount''; and
       (B) in subsection (b)(3)(A) by striking ``$15,000'' and 
     inserting ``twice the dollar amount in effect under 
     subsection (b)(2)(A)''.
       (2) Applicable dollar amount; cost-of-living adjustment.--
     Paragraph (15) of section 457(e) is amended to read as 
     follows:
       ``(15) Applicable dollar amount.--
       ``(A) In general.--The applicable dollar amount shall be 
     the amount determined in accordance with the following table:

    ``For taxable years                                  The applicable
      beginning in                                       dollar amount:
      calendar year:
      2001.....................................................$11,000 
      2002.....................................................$12,000 
      2003.....................................................$13,000 
      2004.....................................................$14,000 
      2005 or thereafter.......................................$15,000.

       ``(B) Cost-of-living adjustments.--In the case of taxable 
     years beginning after December 31, 2005, the Secretary shall 
     adjust the $15,000 amount under subparagraph (A) at the 
     same time and in the same manner as under section 415(d), 
     except that the base period shall be the calendar quarter 
     beginning July 1, 2004, and any increase under this 
     paragraph which is not a multiple of $500 shall be rounded 
     to the next lowest multiple of $500.''.

[[Page H10921]]

       (f) Simple Retirement Accounts.--
       (1) Limitation.--Clause (ii) of section 408(p)(2)(A) 
     (relating to general rule for qualified salary reduction 
     arrangement) is amended by striking ``$6,000'' and inserting 
     ``the applicable dollar amount''.
       (2) Applicable dollar amount.--Subparagraph (E) of 
     408(p)(2) is amended to read as follows:
       ``(E) Applicable dollar amount; cost-of-living 
     adjustment.--
       ``(i) In general.--For purposes of subparagraph (A)(ii), 
     the applicable dollar amount shall be the amount determined 
     in accordance with the following table:

    ``For taxable years                                  The applicable
      beginning in                                       dollar amount:
      calendar year:
        2001....................................................$7,000 
        2002....................................................$8,000 
        2003....................................................$9,000 
        2004 or thereafter.....................................$10,000.

       ``(ii) Cost-of-living adjustment.--In the case of a year 
     beginning after December 31, 2004, the Secretary shall adjust 
     the $10,000 amount under clause (i) at the same time and in 
     the same manner as under section 415(d), except that the base 
     period taken into account shall be the calendar quarter 
     beginning July 1, 2003, and any increase under this 
     subparagraph which is not a multiple of $500 shall be rounded 
     to the next lower multiple of $500.''.
       (3) Conforming amendments.--
       (A) Subclause (I) of section 401(k)(11)(B)(i) is amended by 
     striking ``$6,000'' and inserting ``the amount in effect 
     under section 408(p)(2)(A)(ii)''.
       (B) Section 401(k)(11) is amended by striking subparagraph 
     (E).
       (g) Rounding Rule Relating to Defined Benefit Plans and 
     Defined Contribution Plans.--Paragraph (4) of section 415(d) 
     is amended to read as follows:
       ``(4) Rounding.--
       ``(A) $160,000 amount.--Any increase under subparagraph (A) 
     of paragraph (1) which is not a multiple of $5,000 shall be 
     rounded to the next lowest multiple of $5,000.
       ``(B) $40,000 amount.--Any increase under subparagraph (C) 
     of paragraph (1) which is not a multiple of $1,000 shall be 
     rounded to the next lowest multiple of $1,000.''.
       (h) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 412. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND 
                   SOLE PROPRIETORS.

       (a) In General.--Subparagraph (B) of section 4975(f)(6) 
     (relating to exemptions not to apply to certain transactions) 
     is amended by adding at the end the following new clause:
       ``(iii) Loan exception.--For purposes of subparagraph 
     (A)(i), the term `owner-employee' shall only include a person 
     described in subclause (II) or (III) of clause (i).''.
       (b) Amendment of ERISA.--Section 408(d)(2) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) For purposes of paragraph (1)(A), the term `owner-
     employee' shall only include a person described in clause 
     (ii) or (iii) of subparagraph (A).''.
       (c) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 413. MODIFICATION OF TOP-HEAVY RULES.

       (a) Simplification of Definition of Key Employee.--
       (1) In general.--Section 416(i)(1)(A) (defining key 
     employee) is amended--
       (A) by striking ``or any of the 4 preceding plan years'' in 
     the matter preceding clause (i);
       (B) by striking clause (i) and inserting the following:
       ``(i) an officer of the employer having an annual 
     compensation greater than $115,000,'';
       (C) by striking clause (ii) and redesignating clauses (iii) 
     and (iv) as clauses (ii) and (iii), respectively; and
       (D) by striking the second sentence in the matter following 
     clause (iii), as redesignated by subparagraph (C).
       (2) Cost-of-living adjustment.--Section 416(i)(1) is 
     amended by adding at the end the following new subparagraph:
       ``(E) Cost-of-living adjustment.--In the case of a year 
     beginning after December 31, 2001, the Secretary shall adjust 
     the $115,000 amount under subparagraph (A)(i) at the same 
     time and in the same manner as under section 415(d), except 
     that the base period taken into account shall be the calendar 
     quarter beginning July 1, 2000, and any increase under this 
     subparagraph which is not a multiple of $5,000 shall be 
     rounded to the next lower multiple of $5,000.''.
       (3) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
     amended by striking ``and subparagraph (A)(ii)''.
       (b) Matching Contributions Taken Into Account for Minimum 
     Contribution Requirements.--Section 416(c)(2)(A) (relating to 
     defined contribution plans) is amended by adding at the end 
     the following: ``Employer matching contributions (as defined 
     in section 401(m)(4)(A)) shall be taken into account for 
     purposes of this subparagraph.''.
       (c) Distributions During Last Year Before Determination 
     Date Taken Into Account.--
       (1) In general.--Paragraph (3) of section 416(g) is amended 
     to read as follows:
       ``(3) Distributions during last year before determination 
     date taken into account.--
       ``(A) In general.--For purposes of determining--
       ``(i) the present value of the cumulative accrued benefit 
     for any employee, or
       ``(ii) the amount of the account of any employee,
     such present value or amount shall be increased by the 
     aggregate distributions made with respect to such employee 
     under the plan during the 1-year period ending on the 
     determination date. The preceding sentence shall also apply 
     to distributions under a terminated plan which if it had not 
     been terminated would have been required to be included in an 
     aggregation group.
       ``(B) 5-year period in case of in-service distribution.--In 
     the case of any distribution made for a reason other than 
     separation from service, death, or disability, subparagraph 
     (A) shall be applied by substituting `5-year period' for `1-
     year period'.''.
       (2) Benefits not taken into account.--Subparagraph (E) of 
     section 416(g)(4) is amended--
       (A) by striking ``last 5 years'' in the heading and 
     inserting ``last year before determination date''; and
       (B) by striking ``5-year period'' and inserting ``1-year 
     period''.
       (d) Definition of Top-Heavy Plans.--Paragraph (4) of 
     section 416(g) (relating to other special rules for top-heavy 
     plans) is amended by adding at the end the following new 
     subparagraph:
       ``(H) Cash or deferred arrangements using alternative 
     methods of meeting nondiscrimination requirements.--The term 
     `top-heavy plan' shall not include a plan which consists 
     solely of--
       ``(i) a cash or deferred arrangement which meets the 
     requirements of section 401(k)(12), and
       ``(ii) matching contributions with respect to which the 
     requirements of section 401(m)(11) are met.
     If, but for this subparagraph, a plan would be treated as a 
     top-heavy plan because it is a member of an aggregation group 
     which is a top-heavy group, contributions under the plan may 
     be taken into account in determining whether any other plan 
     in the group meets the requirements of subsection (c)(2).''.
       (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
     Subparagraph (C) of section 416(c)(1) (relating to defined 
     benefit plans) is amended--
       (A) by striking ``clause (ii)'' in clause (i) and inserting 
     ``clause (ii) or (iii)''; and
       (B) by adding at the end the following:
       ``(iii) Exception for frozen plan.--For purposes of 
     determining an employee's years of service with the employer, 
     any service with the employer shall be disregarded to the 
     extent that such service occurs during a plan year when the 
     plan benefits (within the meaning of section 410(b)) no key 
     employee or former key employee.''.
       (f) Elimination of Family Attribution.--Section 
     416(i)(1)(B) (defining 5-percent owner) is amended by adding 
     at the end the following new clause:
       ``(iv) Family attribution disregarded.--Solely for purposes 
     of applying this paragraph (and not for purposes of any 
     provision of this title which incorporates by reference the 
     definition of a key employee or 5-percent owner under this 
     paragraph), section 318 shall be applied without regard to 
     subsection (a)(1) thereof in determining whether any 
     person is a 5-percent owner.''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 414. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR 
                   PURPOSES OF DEDUCTION LIMITS.

       (a) In General.--Section 404 (relating to deduction for 
     contributions of an employer to an employees' trust or 
     annuity plan and compensation under a deferred payment plan) 
     is amended by adding at the end the following new subsection:
       ``(n) Elective Deferrals Not Taken Into Account for 
     Purposes of Deduction Limits.--Elective deferrals (as defined 
     in section 402(g)(3)) shall not be subject to any limitation 
     contained in paragraph (3), (7), or (9) of subsection (a), 
     and such elective deferrals shall not be taken into account 
     in applying any such limitation to any other 
     contributions.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 415. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED 
                   COMPENSATION PLANS OF STATE AND LOCAL 
                   GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

       (a) In General.--Subsection (c) of section 457 (relating to 
     deferred compensation plans of State and local governments 
     and tax-exempt organizations), as amended by section 411, is 
     amended to read as follows:
       ``(c) Limitation.--The maximum amount of the compensation 
     of any one individual which may be deferred under subsection 
     (a) during any taxable year shall not exceed the amount in 
     effect under subsection (b)(2)(A) (as modified by any 
     adjustment provided under subsection (b)(3)).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 2000.

     SEC. 416. ELIMINATION OF USER FEE FOR REQUESTS TO IRS 
                   REGARDING PENSION PLANS.

       (a) Elimination of Certain User Fees.--The Secretary of the 
     Treasury or the Secretary's delegate shall not require 
     payment of user fees under the program established under 
     section 10511 of the Revenue Act of 1987 for requests to the 
     Internal Revenue Service for determination letters with 
     respect to the qualified status of a pension benefit plan 
     maintained solely by one or more eligible employers or any 
     trust which is part of the plan. The preceding sentence shall 
     not apply to any request--
       (1) made after the later of--
       (A) the fifth plan year the pension benefit plan is in 
     existence; or
       (B) the end of any remedial amendment period with respect 
     to the plan beginning within the first 5 plan years; or
       (2) made by the sponsor of any prototype or similar plan 
     which the sponsor intends to market to participating 
     employers.

[[Page H10922]]

       (b) Pension Benefit Plan.--For purposes of this section, 
     the term ``pension benefit plan'' means a pension, profit-
     sharing, stock bonus, annuity, or employee stock ownership 
     plan.
       (c) Eligible Employer.--For purposes of this section, the 
     term ``eligible employer'' has the same meaning given such 
     term in section 408(p)(2)(C)(i)(I) of the Internal Revenue 
     Code of 1986. The determination of whether an employer is an 
     eligible employer under this section shall be made as of the 
     date of the request described in subsection (a).
       (d) Determination of Average Fees Charged.--For purposes of 
     any determination of average fees charged, any request to 
     which subsection (a) applies shall not be taken into account.
       (e) Effective Date.--The provisions of this section shall 
     apply with respect to requests made after December 31, 2000.

     SEC. 417. DEDUCTION LIMITS.

       (a) Modification of Limits.--
       (1) Stock bonus and profit sharing trusts.--
       (A) In general.--Subclause (I) of section 404(a)(3)(A)(i) 
     (relating to stock bonus and profit sharing trusts) is 
     amended by striking ``15 percent'' and inserting ``25 
     percent''.
       (B) Conforming amendment.--Subparagraph (C) of section 
     404(h)(1) is amended by striking ``15 percent'' each place it 
     appears and inserting ``25 percent''.
       (2) Defined contribution plans.--
       (A) In general.--Clause (v) of section 404(a)(3)(A) 
     (relating to stock bonus and profit sharing trusts) is 
     amended to read as follows:
       ``(v) Defined contribution plans subject to the funding 
     standards.--Except as provided by the Secretary, a defined 
     contribution plan which is subject to the funding standards 
     of section 412 shall be treated in the same manner as a stock 
     bonus or profit-sharing plan for purposes of this 
     subparagraph.''.
       (B) Conforming amendments.--
       (i) Section 404(a)(1)(A) is amended by inserting ``(other 
     than a trust to which paragraph (3) applies)'' after 
     ``pension trust''.
       (ii) Section 404(h)(2) is amended by striking ``stock bonus 
     or profit-sharing trust'' and inserting ``trust subject to 
     subsection (a)(3)(A)''.
       (iii) The heading of section 404(h)(2) is amended by 
     striking ``stock bonus and profit-sharing trust'' and 
     inserting ``certain trusts''.
       (b) Compensation.--
       (1) In general.--Section 404(a) (relating to general rule) 
     is amended by adding at the end the following:
       ``(12) Definition of compensation.--For purposes of 
     paragraphs (3), (7), (8), and (9), the term `compensation' 
     shall include amounts treated as participant's compensation 
     under subparagraph (C) or (D) of section 415(c)(3).''.
       (2) Conforming amendments.--
       (A) Subparagraph (B) of section 404(a)(3) is amended by 
     striking the last sentence thereof.
       (B) Clause (i) of section 4972(c)(6)(B) is amended by 
     striking ``(within the meaning of section 404(a))'' and 
     inserting ``(within the meaning of section 404(a) and as 
     adjusted under section 404(a)(12))''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 418. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
                   ROTH CONTRIBUTIONS.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 (relating to deferred compensation, etc.) is 
     amended by inserting after section 402 the following new 
     section:

     ``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH 
                   CONTRIBUTIONS.

       ``(a) General Rule.--If an applicable retirement plan 
     includes a qualified Roth contribution program--
       ``(1) any designated Roth contribution made by an employee 
     pursuant to the program shall be treated as an elective 
     deferral for purposes of this chapter, except that such 
     contribution shall not be excludable from gross income, and
       ``(2) such plan (and any arrangement which is part of such 
     plan) shall not be treated as failing to meet any requirement 
     of this chapter solely by reason of including such program.
       ``(b) Qualified Roth Contribution Program.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified Roth contribution 
     program' means a program under which an employee may elect to 
     make designated Roth contributions in lieu of all or a 
     portion of elective deferrals the employee is otherwise 
     eligible to make under the applicable retirement plan.
       ``(2) Separate accounting required.--A program shall not be 
     treated as a qualified Roth contribution program unless the 
     applicable retirement plan--
       ``(A) establishes separate accounts (`designated Roth 
     accounts') for the designated Roth contributions of each 
     employee and any earnings properly allocable to the 
     contributions, and
       ``(B) maintains separate recordkeeping with respect to each 
     account.
       ``(c) Definitions and Rules Relating to Designated Roth 
     Contributions.--For purposes of this section--
       ``(1) Designated Roth contribution.--The term `designated 
     Roth contribution' means any elective deferral which--
       ``(A) is excludable from gross income of an employee 
     without regard to this section, and
       ``(B) the employee designates (at such time and in such 
     manner as the Secretary may prescribe) as not being so 
     excludable.
       ``(2) Designation limits.--The amount of elective deferrals 
     which an employee may designate under paragraph (1) shall not 
     exceed the excess (if any) of--
       ``(A) the maximum amount of elective deferrals excludable 
     from gross income of the employee for the taxable year 
     (without regard to this section), over
       ``(B) the aggregate amount of elective deferrals of the 
     employee for the taxable year which the employee does not 
     designate under paragraph (1).
       ``(3) Rollover contributions.--
       ``(A) In general.--A rollover contribution of any payment 
     or distribution from a designated Roth account which is 
     otherwise allowable under this chapter may be made only if 
     the contribution is to--
       ``(i) another designated Roth account of the individual 
     from whose account the payment or distribution was made, or
       ``(ii) a Roth IRA of such individual.
       ``(B) Coordination with limit.--Any rollover contribution 
     to a designated Roth account under subparagraph (A) shall not 
     be taken into account for purposes of paragraph (1).
       ``(d) Distribution Rules.--For purposes of this title--
       ``(1) Exclusion.--Any qualified distribution from a 
     designated Roth account shall not be includible in gross 
     income.
       ``(2) Qualified distribution.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified distribution' has 
     the meaning given such term by section 408A(d)(2)(A) (without 
     regard to clause (iv) thereof).
       ``(B) Distributions within nonexclusion period.--A payment 
     or distribution from a designated Roth account shall not be 
     treated as a qualified distribution if such payment or 
     distribution is made within the 5-taxable-year period 
     beginning with the earlier of--
       ``(i) the first taxable year for which the individual made 
     a designated Roth contribution to any designated Roth account 
     established for such individual under the same applicable 
     retirement plan, or
       ``(ii) if a rollover contribution was made to such 
     designated Roth account from a designated Roth account 
     previously established for such individual under another 
     applicable retirement plan, the first taxable year for which 
     the individual made a designated Roth contribution to such 
     previously established account.
       ``(C) Distributions of excess deferrals and contributions 
     and earnings thereon.--The term `qualified distribution' 
     shall not include any distribution of any excess deferral 
     under section 402(g)(2) or any excess contribution under 
     section 401(k)(8), and any income on the excess deferral 
     or contribution.
       ``(3) Treatment of distributions of certain excess 
     deferrals.--Notwithstanding section 72, if any excess 
     deferral under section 402(g)(2) attributable to a designated 
     Roth contribution is not distributed on or before the 1st 
     April 15 following the close of the taxable year in which 
     such excess deferral is made, the amount of such excess 
     deferral shall--
       ``(A) not be treated as investment in the contract, and
       ``(B) be included in gross income for the taxable year in 
     which such excess is distributed.
       ``(4) Aggregation rules.--Section 72 shall be applied 
     separately with respect to distributions and payments from a 
     designated Roth account and other distributions and payments 
     from the plan.
       ``(e) Other Definitions.--For purposes of this section--
       ``(1) Applicable retirement plan.--The term `applicable 
     retirement plan' means--
       ``(A) an employees' trust described in section 401(a) which 
     is exempt from tax under section 501(a), and
       ``(B) a plan under which amounts are contributed by an 
     individual's employer for an annuity contract described in 
     section 403(b).
       ``(2) Elective deferral.--The term `elective deferral' 
     means any elective deferral described in subparagraph (A) or 
     (C) of section 402(g)(3).''.
       (b) Excess Deferrals.--Section 402(g) (relating to 
     limitation on exclusion for elective deferrals) is amended--
       (1) by adding at the end of paragraph (1)(A) (as added by 
     section 201(d)(1)) the following new sentence: ``The 
     preceding sentence shall not apply to the portion of such 
     excess as does not exceed the designated Roth contributions 
     of the individual for the taxable year.''; and
       (2) by inserting ``(or would be included but for the last 
     sentence thereof)'' after ``paragraph (1)'' in paragraph 
     (2)(A).
       (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is 
     amended by adding at the end the following:
     ``If any portion of an eligible rollover distribution is 
     attributable to payments or distributions from a designated 
     Roth account (as defined in section 402A), an eligible 
     retirement plan with respect to such portion shall include 
     only another designated Roth account and a Roth IRA.''.
       (d) Reporting Requirements.--
       (1) W-2 information.--Section 6051(a)(8) is amended by 
     inserting ``, including the amount of designated Roth 
     contributions (as defined in section 402A)'' before the comma 
     at the end.
       (2) Information.--Section 6047 is amended by redesignating 
     subsection (f) as subsection (g) and by inserting after 
     subsection (e) the following new subsection:
       ``(f) Designated Roth Contributions.--The Secretary shall 
     require the plan administrator of each applicable retirement 
     plan (as defined in section 402A) to make such returns and 
     reports regarding designated Roth contributions (as defined 
     in section 402A) to the Secretary, participants and 
     beneficiaries of the plan, and such other persons as the 
     Secretary may prescribe.''.
       (e) Conforming Amendments.--
       (1) Section 408A(e) is amended by adding after the first 
     sentence the following new sentence: ``Such term includes a 
     rollover contribution described in section 402A(c)(3)(A).''.
       (2) The table of sections for subpart A of part I of 
     subchapter D of chapter 1 is amended by inserting after the 
     item relating to section 402 the following new item:


[[Page H10923]]


``Sec. 402A. Optional treatment of elective deferrals as Roth 
              contributions.''.

       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.
                Subtitle C--Enhancing Fairness For Women

     SEC. 421. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR 
                   OVER.

       (a) In General.--Section 414 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new subsection:
       ``(v) Catch-up Contributions for Individuals Age 50 or 
     Over.--
       ``(1) In general.--An applicable employer plan shall not be 
     treated as failing to meet any requirement of this title 
     solely because the plan permits an eligible participant to 
     make additional elective deferrals in any plan year.
       ``(2) Limitation on amount of additional deferrals.--
       ``(A) In general.--A plan shall not permit additional 
     elective deferrals under paragraph (1) for any year in an 
     amount greater than the lesser of--
       ``(i) the applicable deferral amount, or
       ``(ii) the excess (if any) of--

       ``(I) the participant's compensation for the year, over
       ``(II) any other elective deferrals of the participant for 
     such year which are made without regard to this subsection.

       ``(B) Applicable deferral amount; cost-of-living 
     adjustment.--
       ``(i) In general.--For purposes of subparagraph (A)(i), the 
     applicable deferral amount shall be the amount determined in 
     accordance with the following table:

    ``For taxable years                                  The applicable
      beginning in                                     deferral amount:
      calendar year:
        2001....................................................$1,000 
        2002....................................................$2,000 
        2003....................................................$3,000 
        2004....................................................$4,000 
        2005 or thereafter......................................$5,000.

       ``(ii) Cost-of-living adjustment.--In the case of a year 
     beginning after December 31, 2005, the Secretary shall adjust 
     the $5,000 amount under clause (i) at the same time and in 
     the same manner as under section 415(d), except that the base 
     period taken into account shall be the calendar quarter 
     beginning July 1, 2004, and any increase under this 
     subparagraph which is not a multiple of $500 shall be rounded 
     to the next lower multiple of $500.
       ``(3) Treatment of contributions.--In the case of any 
     contribution to a plan under paragraph (1), such contribution 
     shall not, with respect to the year in which the contribution 
     is made--
       ``(A) be subject to any otherwise applicable limitation 
     contained in section 402(g), 402(h)(2), 404(a), 404(h), 
     408(p)(2)(A)(ii), 415, or 457, or
       ``(B) be taken into account in applying such limitations to 
     other contributions or benefits under such plan or any other 
     such plan.
       ``(4) Application of nondiscrimination rules.--
       ``(A) In general.--An applicable employer plan shall not be 
     treated as failing to meet the nondiscrimination requirements 
     under section 401(a)(4) with respect to benefits, rights, and 
     features if the plan allows all eligible participants to make 
     the same election with respect to the additional elective 
     deferrals under this subsection.
       ``(B) Aggregation.--For purposes of subparagraph (A), all 
     plans maintained by employers who are treated as a single 
     employer under subsection (b), (c), (m), or (o) of section 
     414 shall be treated as 1 plan.
       ``(5) Eligible participant.--For purposes of this 
     subsection, the term `eligible participant' means, with 
     respect to any plan year, a participant in a plan--
       ``(A) who has attained the age of 50 before the close of 
     the plan year, and
       ``(B) with respect to whom no other elective deferrals may 
     (without regard to this subsection) be made to the plan for 
     the plan year by reason of the application of any limitation 
     or other restriction described in paragraph (3) or any 
     comparable limitation contained in the terms of the plan.
       ``(6) Other definitions and rules.--For purposes of this 
     subsection--
       ``(A) Applicable employer plan.--The term `applicable 
     employer plan' means--
       ``(i) an employees' trust described in section 401(a) which 
     is exempt from tax under section 501(a),
       ``(ii) a plan under which amounts are contributed by an 
     individual's employer for an annuity contract described in 
     section 403(b),
       ``(iii) an eligible deferred compensation plan under 
     section 457 of an eligible employer as defined in section 
     457(e)(1)(A), and
       ``(iv) an arrangement meeting the requirements of section 
     408 (k) or (p).
       ``(B) Elective deferral.--The term `elective deferral' has 
     the meaning given such term by subsection (u)(2)(C).
       ``(C) Exception for section 457 plans.--This subsection 
     shall not apply to an applicable employer plan described in 
     subparagraph (A)(iii) for any year to which section 457(b)(3) 
     applies.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions in taxable years beginning after 
     December 31, 2000.

     SEC. 422. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES 
                   TO DEFINED CONTRIBUTION PLANS.

       (a) Equitable Treatment.--
       (1) In general.--Subparagraph (B) of section 415(c)(1) 
     (relating to limitation for defined contribution plans) is 
     amended by striking ``25 percent'' and inserting ``100 
     percent''.
       (2) Application to section 403(b).--Section 403(b) is 
     amended--
       (A) by striking ``the exclusion allowance for such taxable 
     year'' in paragraph (1) and inserting ``the applicable limit 
     under section 415'';
       (B) by striking paragraph (2); and
       (C) by inserting ``or any amount received by a former 
     employee after the fifth taxable year following the taxable 
     year in which such employee was terminated'' before the 
     period at the end of the second sentence of paragraph (3).
       (3) Conforming amendments.--
       (A) Subsection (f) of section 72 is amended by striking 
     ``section 403(b)(2)(D)(iii))'' and inserting ``section 
     403(b)(2)(D)(iii), as in effect before the enactment of the 
     Retirement Savings and Pension Coverage Act of 2000)''.
       (B) Section 404(a)(10)(B) is amended by striking ``, the 
     exclusion allowance under section 403(b)(2),''.
       (C) Section 415(a)(2) is amended by striking ``, and the 
     amount of the contribution for such portion shall reduce the 
     exclusion allowance as provided in section 403(b)(2)''.
       (D) Section 415(c)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Annuity contracts.--In the case of an annuity 
     contract described in section 403(b), the term `participant's 
     compensation' means the participant's includible compensation 
     determined under section 403(b)(3).''.
       (E) Section 415(c) is amended by striking paragraph (4).
       (F) Section 415(c)(7) is amended to read as follows:
       ``(7) Certain contributions by church plans not treated as 
     exceeding limit.--
       ``(A) In general.--Notwithstanding any other provision of 
     this subsection, at the election of a participant who is an 
     employee of a church or a convention or association of 
     churches, including an organization described in section 
     414(e)(3)(B)(ii), contributions and other additions for an 
     annuity contract or retirement income account described in 
     section 403(b) with respect to such participant, when 
     expressed as an annual addition to such participant's 
     account, shall be treated as not exceeding the limitation of 
     paragraph (1) if such annual addition is not in excess of 
     $10,000.
       ``(B) $40,000 aggregate limitation.--The total amount of 
     additions with respect to any participant which may be taken 
     into account for purposes of this subparagraph for all years 
     may not exceed $40,000.
       ``(C) Annual addition.--For purposes of this paragraph, the 
     term `annual addition' has the meaning given such term by 
     paragraph (2).''.
       (G) Subparagraph (B) of section 402(g)(7) (as redesignated 
     by section 201(d)(3)(A)) is amended by inserting before the 
     period at the end the following: ``(as in effect before the 
     enactment of the Retirement Savings and Pension Coverage Act 
     of 2000)''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (b) Special Rules for Sections 403(b) and 408.--
       (1) In general.--Subsection (k) of section 415 is amended 
     by adding at the end the following new paragraph:
       ``(4) Special rules for sections 403(b) and 408.--For 
     purposes of this section, any annuity contract described in 
     section 403(b) for the benefit of a participant shall be 
     treated as a defined contribution plan maintained by each 
     employer with respect to which the participant has the 
     control required under subsection (b) or (c) of section 414 
     (as modified by subsection (h)). For purposes of this 
     section, any contribution by an employer to a simplified 
     employee pension plan for an individual for a taxable year 
     shall be treated as an employer contribution to a defined 
     contribution plan for such individual for such year.''.
       (2) Effective date.--
       (A) In general.--The amendment made by paragraph (1) shall 
     apply to limitation years beginning after December 31, 1999.
       (B) Exclusion allowance.--Effective for limitation years 
     beginning in 2000, in the case of any annuity contract 
     described in section 403(b) of the Internal Revenue Code of 
     1986, the amount of the contribution disqualified by reason 
     of section 415(g) of such Code shall reduce the exclusion 
     allowance as provided in section 403(b)(2) of such Code.
       (3) Modification of 403(b) exclusion allowance to conform 
     to 415 modification.--The Secretary of the Treasury shall 
     modify the regulations regarding the exclusion allowance 
     under section 403(b)(2) of the Internal Revenue Code of 1986 
     to render void the requirement that contributions to a 
     defined benefit pension plan be treated as previously 
     excluded amounts for purposes of the exclusion allowance. For 
     taxable years beginning after December 31, 1999, such 
     regulations shall be applied as if such requirement were 
     void.
       (c) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--
       (1) In general.--Subparagraph (B) of section 457(b)(2) 
     (relating to salary limitation on eligible deferred 
     compensation plans) is amended by striking ``33\1/3\ 
     percent'' and inserting ``100 percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.

     SEC. 423. FASTER VESTING OF CERTAIN EMPLOYER MATCHING 
                   CONTRIBUTIONS.

       (a) In General.--Section 411(a) (relating to minimum 
     vesting standards) is amended--
       (1) in paragraph (2), by striking ``A plan'' and inserting 
     ``Except as provided in paragraph (12), a plan''; and
       (2) by adding at the end the following:
       ``(12) Faster vesting for matching contributions.--In the 
     case of matching contributions (as defined in section 
     401(m)(4)(A)), paragraph (2) shall be applied--
       ``(A) by substituting `3 years' for `5 years' in 
     subparagraph (A), and

[[Page H10924]]

       ``(B) by substituting the following table for the table 
     contained in subparagraph (B):

                                                     The nonforfeitable
    ``Years of service:                                percentage is:  
      2............................................................20  
      3............................................................40  
      4............................................................60  
      5............................................................80  
      6.........................................................100.''.

       (b) Amendment of ERISA.--Section 203(a) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is 
     amended--
       (1) in paragraph (2), by striking ``A plan'' and inserting 
     ``Except as provided in paragraph (4), a plan'', and
       (2) by adding at the end the following:
       ``(4) In the case of matching contributions (as defined in 
     section 401(m)(4)(A) of the Internal Revenue Code of 1986), 
     paragraph (2) shall be applied--
       ``(A) by substituting `3 years' for `5 years' in 
     subparagraph (A), and
       ``(B) by substituting the following table for the table 
     contained in subparagraph (B):

                                                     The nonforfeitable
    ``Years of service:                                percentage is:  
      2............................................................20  
      3............................................................40  
      4............................................................60  
      5............................................................80  
      6.........................................................100.''.

       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to contributions 
     for plan years beginning after December 31, 2000.
       (2) Collective bargaining agreements.--In the case of a 
     plan maintained pursuant to one or more collective bargaining 
     agreements between employee representatives and one or more 
     employers ratified by the date of the enactment of this Act, 
     the amendments made by this section shall not apply to 
     contributions on behalf of employees covered by any such 
     agreement for plan years beginning before the earlier of--
       (A) the later of--
       (i) the date on which the last of such collective 
     bargaining agreements terminates (determined without regard 
     to any extension thereof on or after such date of the 
     enactment); or
       (ii) January 1, 2001; or
       (B) January 1, 2005.
       (3) Service required.--With respect to any plan, the 
     amendments made by this section shall not apply to any 
     employee before the date that such employee has 1 hour of 
     service under such plan in any plan year to which the 
     amendments made by this section apply.

     SEC. 424. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION RULES.

       (a) Simplification and Finalization of Minimum Distribution 
     Requirements.--
       (1) In general.--The Secretary of the Treasury shall--
       (A) simplify and finalize the regulations relating to 
     minimum distribution requirements under sections 401(a)(9), 
     408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of the 
     Internal Revenue Code of 1986; and
       (B) modify such regulations to--
       (i) reflect current life expectancy; and
       (ii) revise the required distribution methods so that, 
     under reasonable assumptions, the amount of the required 
     minimum distribution does not decrease over a participant's 
     life expectancy.
       (2) Fresh start.--Notwithstanding subparagraph (D) of 
     section 401(a)(9) of such Code, during the first year that 
     regulations are in effect under this subsection, required 
     distributions for future years may be redetermined to reflect 
     changes under such regulations. Such redetermination shall 
     include the opportunity to choose a new designated 
     beneficiary and to elect a new method of calculating life 
     expectancy.
       (3) Date for regulations.--Not later than December 31, 
     2001, the Secretary shall issue final regulations described 
     in paragraph (1) and such regulations shall apply without 
     regard to whether an individual had previously begun 
     receiving minimum distributions.
       (b) Repeal of Rule Where Distributions Had Begun Before 
     Death Occurs.--
       (1) In general.--Subparagraph (B) of section 401(a)(9) is 
     amended by striking clause (i) and redesignating clauses 
     (ii), (iii), and (iv) as clauses (i), (ii), and (iii), 
     respectively.
       (2) Conforming changes.--
       (A) Clause (i) of section 401(a)(9)(B) (as so redesignated) 
     is amended--
       (i) by striking ``for other cases'' in the heading; and
       (ii) by striking ``the distribution of the employee's 
     interest has begun in accordance with subparagraph (A)(ii)'' 
     and inserting ``his entire interest has been distributed to 
     him''.
       (B) Clause (ii) of section 401(a)(9)(B) (as so 
     redesignated) is amended by striking ``clause (ii)'' and 
     inserting ``clause (i)''.
       (C) Clause (iii) of section 401(a)(9)(B) (as so 
     redesignated) is amended--
       (i) by striking ``clause (iii)(I)'' and inserting ``clause 
     (ii)(I)'';
       (ii) by striking ``clause (iii)(III)'' in subclause (I) and 
     inserting ``clause (ii)(III)'';
       (iii) by striking ``the date on which the employee would 
     have attained age 70\1/2\,'' in subclause (I) and inserting 
     ``April 1 of the calendar year following the calendar year in 
     which the spouse attains 70\1/2\,''; and
       (iv) by striking ``the distributions to such spouse 
     begin,'' in subclause (II) and inserting ``his entire 
     interest has been distributed to him,''.
       (3) Effective date.--
       (A) In general.--Except as provided in subparagraph (B), 
     the amendments made by this subsection shall apply to years 
     beginning after December 31, 2000.
       (B) Distributions to surviving spouse.--
       (i) In general.--In the case of an employee described in 
     clause (ii), distributions to the surviving spouse of the 
     employee shall not be required to commence prior to the date 
     on which such distributions would have been required to begin 
     under section 401(a)(9)(B) of the Internal Revenue Code of 
     1986 (as in effect on the day before the date of the 
     enactment of this Act).
       (ii) Certain employees.--An employee is described in this 
     clause if such employee dies before--

       (I) the date of the enactment of this Act, and
       (II) the required beginning date (within the meaning of 
     section 401(a)(9)(C) of the Internal Revenue Code of 1986) of 
     the employee.

       (c) Reduction in Excise Tax.--
       (1) In general.--Subsection (a) of section 4974 is amended 
     by striking ``50 percent'' and inserting ``10 percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.

     SEC. 425. CLARIFICATION OF TAX TREATMENT OF DIVISION OF 
                   SECTION 457 PLAN BENEFITS UPON DIVORCE.

       (a) In General.--Section 414(p)(11) (relating to 
     application of rules to governmental and church plans) is 
     amended--
       (1) by inserting ``or an eligible deferred compensation 
     plan (within the meaning of section 457(b))'' after 
     ``subsection (e))''; and
       (2) in the heading, by striking ``governmental and church 
     plans'' and inserting ``certain other plans''.
       (b) Waiver of Certain Distribution Requirements.--Paragraph 
     (10) of section 414(p) is amended by striking ``and section 
     409(d)'' and inserting ``section 409(d), and section 
     457(d)''.
       (c) Tax Treatment of Payments From a Section 457 Plan.--
     Subsection (p) of section 414 is amended by redesignating 
     paragraph (12) as paragraph (13) and inserting after 
     paragraph (11) the following new paragraph:
       ``(12) Tax treatment of payments from a section 457 plan.--
     If a distribution or payment from an eligible deferred 
     compensation plan described in section 457(b) is made 
     pursuant to a qualified domestic relations order, rules 
     similar to the rules of section 402(e)(1)(A) shall apply to 
     such distribution or payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transfers, distributions, and payments made 
     after December 31, 2000.

     SEC. 426. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.

       (a) Safe Harbor Relief.--
       (1) In general.--The Secretary of the Treasury shall revise 
     the regulations relating to hardship distributions under 
     section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 
     1986 to provide that the period an employee is prohibited 
     from making elective and employee contributions in order for 
     a distribution to be deemed necessary to satisfy financial 
     need shall be equal to 6 months.
       (2) Effective date.--The revised regulations under this 
     subsection shall apply to years beginning after December 31, 
     2000.
       (b) Hardship Distributions Not Treated as Eligible Rollover 
     Distributions.--
       (1) Modification of definition of eligible rollover.--
     Section 402(c)(4)(C) (relating to eligible rollover 
     distribution) is amended by striking ``described in section 
     401(k)(2)(B)(i)(IV)'' and inserting ``under the terms of the 
     plan''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to distributions made after December 31, 2001, 
     unless a plan administrator elects to apply such amendment to 
     distributions made after December 31, 2000.

     SEC. 427. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR 
                   DOMESTIC OR SIMILAR WORKERS.

       (a) In General.--Section 4972(c)(6) (relating to exceptions 
     to nondeductible contributions), as amended by 
     section 442(b), is amended by striking ``or'' at the end 
     of subparagraph (A), by striking the period and inserting 
     ``, or'' at the end of subparagraph (B), and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) so much of the contributions to a qualified employer 
     plan which are not deductible when contributed solely because 
     such contributions are not made in connection with a trade or 
     business of the employer.''.
       (b) Exclusion of Certain Contributions.--Section 
     4972(c)(6), as amended by subsection (a), is amended by 
     adding at the end the following new sentence: ``Subparagraph 
     (C) shall not apply to contributions made on behalf of the 
     employer or a member of the employer's family (as defined in 
     section 447(e)(1)).''.
       (c) No Inference.--Nothing in the amendments made by this 
     section shall be construed to infer the proper treatment of 
     nondeductible contributions under the laws in effect before 
     such amendments.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.
          Subtitle D--Increasing Portability For Participants

     SEC. 431. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

       (a) Rollovers From and to Section 457 Plans.--
       (1) Rollovers from section 457 plans.--
       (A) In general.--Section 457(e) (relating to other 
     definitions and special rules) is amended by adding at the 
     end the following:
       ``(16) Rollover amounts.--
       ``(A) General rule.--In the case of an eligible deferred 
     compensation plan established and maintained by an employer 
     described in subsection (e)(1)(A), if--
       ``(i) any portion of the balance to the credit of an 
     employee in such plan is paid to such employee in an eligible 
     rollover distribution (within the meaning of section 
     402(c)(4) without regard to subparagraph (C) thereof),

[[Page H10925]]

       ``(ii) the employee transfers any portion of the property 
     such employee receives in such distribution to an eligible 
     retirement plan described in section 402(c)(8)(B), and
       ``(iii) in the case of a distribution of property other 
     than money, the amount so transferred consists of the 
     property distributed,

     then such distribution (to the extent so transferred) shall 
     not be includible in gross income for the taxable year in 
     which paid.
       ``(B) Certain rules made applicable.--The rules of 
     paragraphs (2) through (7) and (9) of section 402(c) and 
     section 402(f) shall apply for purposes of subparagraph (A).
       ``(C) Reporting.--Rollovers under this paragraph shall be 
     reported to the Secretary in the same manner as rollovers 
     from qualified retirement plans (as defined in section 
     4974(c)).''.
       (B) Deferral limit determined without regard to rollover 
     amounts.--Section 457(b)(2) (defining eligible deferred 
     compensation plan) is amended by inserting ``(other than 
     rollover amounts)'' after ``taxable year''.
       (C) Direct rollover.--Paragraph (1) of section 457(d) is 
     amended by striking ``and'' at the end of subparagraph (A), 
     by striking the period at the end of subparagraph (B) and 
     inserting ``, and'', and by inserting after subparagraph (B) 
     the following:
       ``(C) in the case of a plan maintained by an employer 
     described in subsection (e)(1)(A), the plan meets 
     requirements similar to the requirements of section 
     401(a)(31).

     Any amount transferred in a direct trustee-to-trustee 
     transfer in accordance with section 401(a)(31) shall not be 
     includible in gross income for the taxable year of 
     transfer.''.
       (D) Withholding.--
       (i) Paragraph (12) of section 3401(a) is amended by adding 
     at the end the following:
       ``(E) under or to an eligible deferred compensation plan 
     which, at the time of such payment, is a plan described in 
     section 457(b) maintained by an employer described in section 
     457(e)(1)(A), or''.
       (ii) Paragraph (3) of section 3405(c) is amended to read as 
     follows:
       ``(3) Eligible rollover distribution.--For purposes of this 
     subsection, the term `eligible rollover distribution' has the 
     meaning given such term by section 402(f)(2)(A).''.
       (iii) Liability for withholding.--Subparagraph (B) of 
     section 3405(d)(2) is amended by striking ``or'' at the end 
     of clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``, or'', and by adding at the end the 
     following:
       ``(iv) section 457(b) and which is maintained by an 
     eligible employer described in section 457(e)(1)(A).''.
       (2) Rollovers to section 457 plans.--
       (A) In general.--Section 402(c)(8)(B) (defining eligible 
     retirement plan) is amended by striking ``and'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, and'', and by inserting after clause 
     (iv) the following new clause:
       ``(v) an eligible deferred compensation plan described in 
     section 457(b) which is maintained by an eligible employer 
     described in section 457(e)(1)(A).''.
       (B) Separate accounting.--Section 402(c) is amended by 
     adding at the end the following new paragraph:
       ``(11) Separate accounting.--Unless a plan described in 
     clause (v) of paragraph (8)(B) agrees to separately account 
     for amounts rolled into such plan from eligible retirement 
     plans not described in such clause, the plan described in 
     such clause may not accept transfers or rollovers from such 
     retirement plans.''.
       (C) 10 percent additional tax.--Subsection (t) of section 
     72 (relating to 10-percent additional tax on early 
     distributions from qualified retirement plans) is amended by 
     adding at the end the following new paragraph:
       ``(9) Special rule for rollovers to section 457 plans.--For 
     purposes of this subsection, a distribution from an eligible 
     deferred compensation plan (as defined in section 457(b)) of 
     an eligible employer described in section 457(e)(1)(A) shall 
     be treated as a distribution from a qualified retirement plan 
     described in 4974(c)(1) to the extent that such distribution 
     is attributable to an amount transferred to an eligible 
     deferred compensation plan from a qualified retirement plan 
     (as defined in section 4974(c)).''.
       (b) Allowance of Rollovers From and to 403(b) Plans.--
       (1) Rollovers from section 403(b) plans.--Section 
     403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
     striking ``such distribution'' and all that follows and 
     inserting ``such distribution to an eligible retirement plan 
     described in section 402(c)(8)(B), and''.
       (2) Rollovers to section 403(b) plans.--Section 
     402(c)(8)(B) (defining eligible retirement plan), as amended 
     by subsection (a), is amended by striking ``and'' at the end 
     of clause (iv), by striking the period at the end of clause 
     (v) and inserting ``, and'', and by inserting after clause 
     (v) the following new clause:
       ``(vi) an annuity contract described in section 403(b).''.
       (c) Expanded Explanation to Recipients of Rollover 
     Distributions.--Paragraph (1) of section 402(f) (relating to 
     written explanation to recipients of distributions eligible 
     for rollover treatment) is amended by striking ``and'' at the 
     end of subparagraph (C), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) of the provisions under which distributions from the 
     eligible retirement plan receiving the distribution may be 
     subject to restrictions and tax consequences which are 
     different from those applicable to distributions from the 
     plan making such distribution.''.
       (d) Spousal Rollovers.--Section 402(c)(9) (relating to 
     rollover where spouse receives distribution after death of 
     employee) is amended by striking ``; except that'' and all 
     that follows up to the end period.
       (e) Conforming Amendments.--
       (1) Section 72(o)(4) is amended by striking ``and 
     408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and 
     457(e)(16)''.
       (2) Section 219(d)(2) is amended by striking ``or 
     408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
       (3) Section 401(a)(31)(B) is amended by striking ``and 
     403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
     457(e)(16)''.
       (4) Subparagraph (A) of section 402(f)(2) is amended by 
     striking ``or paragraph (4) of section 403(a)'' and inserting 
     ``, paragraph (4) of section 403(a), subparagraph (A) of 
     section 403(b)(8), or subparagraph (A) of section 
     457(e)(16)''.
       (5) Paragraph (1) of section 402(f) is amended by striking 
     ``from an eligible retirement plan''.
       (6) Subparagraphs (A) and (B) of section 402(f)(1) are 
     amended by striking ``another eligible retirement plan'' and 
     inserting ``an eligible retirement plan''.
       (7) Subparagraph (B) of section 403(b)(8) is amended to 
     read as follows:
       ``(B) Certain rules made applicable.--The rules of 
     paragraphs (2) through (7) and (9) of section 402(c) and 
     section 402(f) shall apply for purposes of subparagraph (A), 
     except that section 402(f) shall be applied to the payor 
     in lieu of the plan administrator.''.
       (8) Section 408(a)(1) is amended by striking ``or 
     403(b)(8),'' and inserting ``403(b)(8), or 457(e)(16)''.
       (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
     amended by striking ``and 408(d)(3)'' and inserting 
     ``403(b)(8), 408(d)(3), and 457(e)(16)''.
       (10) Section 415(c)(2) is amended by striking ``and 
     408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
       (11) Section 4973(b)(1)(A) is amended by striking ``or 
     408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
       (f) Effective Date; Special Rules.--
       (1) Effective date.--Except as provided in paragraph (2), 
     the amendments made by this section shall apply to 
     distributions after December 31, 2000.
       (2) Reasonable notice.--No penalty shall be imposed on a 
     plan for the failure to provide the information required by 
     the amendment made by subsection (c) with respect to any 
     distribution made before January 1, 2002, if the 
     administrator of such plan makes a reasonable attempt to 
     comply with such requirement.
       (3) Special rule.--Notwithstanding any other provision of 
     law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
     Reform Act of 1986 shall not apply to any distribution from 
     an eligible retirement plan (as defined in clause (iii) or 
     (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 
     1986) on behalf of an individual if there was a rollover to 
     such plan on behalf of such individual which is permitted 
     solely by reason of any amendment made by this section.

     SEC. 432. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

       (a) In General.--Subparagraph (A) of section 408(d)(3) 
     (relating to rollover amounts) is amended by adding ``or'' at 
     the end of clause (i), by striking clauses (ii) and (iii), 
     and by adding at the end the following:
       ``(ii) the entire amount received (including money and any 
     other property) is paid into an eligible retirement plan for 
     the benefit of such individual not later than the 60th day 
     after the date on which the payment or distribution is 
     received, except that the maximum amount which may be paid 
     into such plan may not exceed the portion of the amount 
     received which is includible in gross income (determined 
     without regard to this paragraph).
     For purposes of clause (ii), the term `eligible retirement 
     plan' means an eligible retirement plan described in clause 
     (iii), (iv), (v), or (vi) of section 402(c)(8)(B).''.
       (b) Conforming Amendments.--
       (1) Paragraph (1) of section 403(b) is amended by striking 
     ``section 408(d)(3)(A)(iii)'' and inserting ``section 
     408(d)(3)(A)(ii)''.
       (2) Clause (i) of section 408(d)(3)(D) is amended by 
     striking ``(i), (ii), or (iii)'' and inserting ``(i) or 
     (ii)''.
       (3) Subparagraph (G) of section 408(d)(3) is amended to 
     read as follows:
       ``(G) Simple retirement accounts.--In the case of any 
     payment or distribution out of a simple retirement account 
     (as defined in subsection (p)) to which section 72(t)(6) 
     applies, this paragraph shall not apply unless such payment 
     or distribution is paid into another simple retirement 
     account.''.
       (c) Effective Date; Special Rule.--
       (1) Effective date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.
       (2) Special rule.--Notwithstanding any other provision of 
     law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
     Reform Act of 1986 shall not apply to any distribution from 
     an eligible retirement plan (as defined in clause (iii) or 
     (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 
     1986) on behalf of an individual if there was a rollover to 
     such plan on behalf of such individual which is permitted 
     solely by reason of the amendments made by this section.

     SEC. 433. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

       (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 
     402(c) (relating to maximum amount which may be rolled over) 
     is amended by adding at the end the following: ``The 
     preceding sentence shall not apply to such distribution to 
     the extent--
       ``(A) such portion is transferred in a direct trustee-to-
     trustee transfer to a qualified trust which is part of a plan 
     which is a defined contribution plan and which agrees to 
     separately

[[Page H10926]]

     account for amounts so transferred, including separately 
     accounting for the portion of such distribution which is 
     includible in gross income and the portion of such 
     distribution which is not so includible, or
       ``(B) such portion is transferred to an eligible retirement 
     plan described in clause (i) or (ii) of paragraph (8)(B).''.
       (b) Optional Direct Transfer of Eligible Rollover 
     Distributions.--Subparagraph (B) of section 401(a)(31) 
     (relating to limitation) is amended by adding at the end the 
     following: ``The preceding sentence shall not apply to such 
     distribution if the plan to which such distribution is 
     transferred--
       ``(i) agrees to separately account for amounts so 
     transferred, including separately accounting for the portion 
     of such distribution which is includible in gross income and 
     the portion of such distribution which is not so includible, 
     or
       ``(ii) is an eligible retirement plan described in clause 
     (i) or (ii) of section 402(c)(8)(B).''.
       (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) 
     of section 408(d) (relating to special rules for applying 
     section 72) is amended by inserting at the end the following:
       ``(H) Application of section 72.--
       ``(i) In general.--If--

       ``(I) a distribution is made from an individual retirement 
     plan, and
       ``(II) a rollover contribution is made to an eligible 
     retirement plan described in section 402(c)(8)(B)(iii), (iv), 
     (v), or (vi) with respect to all or part of such 
     distribution,

     then, notwithstanding paragraph (2), the rules of clause (ii) 
     shall apply for purposes of applying section 72.
       ``(ii) Applicable rules.--In the case of a distribution 
     described in clause (i)--

       ``(I) section 72 shall be applied separately to such 
     distribution,
       ``(II) notwithstanding the pro rata allocation of income 
     on, and investment in, the contract to distributions under 
     section 72, the portion of such distribution rolled over to 
     an eligible retirement plan described in clause (i) shall be 
     treated as from income on the contract (to the extent of the 
     aggregate income on the contract from all individual 
     retirement plans of the distributee), and
       ``(III) appropriate adjustments shall be made in applying 
     section 72 to other distributions in such taxable year and 
     subsequent taxable years.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to distributions made after December 31, 2001.

     SEC. 434. HARDSHIP EXCEPTION TO 60-DAY RULE.

       (a) Exempt Trusts.--Paragraph (3) of section 402(c) 
     (relating to transfer must be made within 60 days of receipt) 
     is amended to read as follows:
       ``(3) Transfer must be made within 60 days of receipt.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     paragraph (1) shall not apply to any transfer of a 
     distribution made after the 60th day following the day on 
     which the distributee received the property distributed.
       ``(B) Hardship exception.--The Secretary may waive the 60-
     day requirement under subparagraph (A) where the failure to 
     waive such requirement would be against equity or good 
     conscience, including casualty, disaster, or other events 
     beyond the reasonable control of the individual subject to 
     such requirement.''.
       (b) IRAs.--Paragraph (3) of section 408(d) (relating to 
     rollover contributions), as amended by section 433, is 
     amended by adding after subparagraph (H) the following new 
     subparagraph:
       ``(I) Waiver of 60-day requirement.--The Secretary may 
     waive the 60-day requirement under subparagraphs (A) and (D) 
     where the failure to waive such requirement would be against 
     equity or good conscience, including casualty, disaster, or 
     other events beyond the reasonable control of the individual 
     subject to such requirement.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 435. TREATMENT OF FORMS OF DISTRIBUTION.

       (a) Plan Transfers.--
       (1) Amendment of internal revenue code.--Paragraph (6) of 
     section 411(d) (relating to accrued benefit not to be 
     decreased by amendment) is amended by adding at the end the 
     following:
       ``(D) Plan transfers.--
       ``(i) In general.--A defined contribution plan (in this 
     subparagraph referred to as the `transferee plan') shall not 
     be treated as failing to meet the requirements of this 
     subsection merely because the transferee plan does not 
     provide some or all of the forms of distribution previously 
     available under another defined contribution plan (in this 
     subparagraph referred to as the `transferor plan') to the 
     extent that--

       ``(I) the forms of distribution previously available under 
     the transferor plan applied to the account of a participant 
     or beneficiary under the transferor plan that was transferred 
     from the transferor plan to the transferee plan pursuant to a 
     direct transfer rather than pursuant to a distribution from 
     the transferor plan,
       ``(II) the terms of both the transferor plan and the 
     transferee plan authorize the transfer described in subclause 
     (I),
       ``(III) the transfer described in subclause (I) was made 
     pursuant to a voluntary election by the participant or 
     beneficiary whose account was transferred to the transferee 
     plan,
       ``(IV) the election described in subclause (III) was made 
     after the participant or beneficiary received a notice 
     describing the consequences of making the election, and
       ``(V) the transferee plan allows the participant or 
     beneficiary described in subclause (III) to receive any 
     distribution to which the participant or beneficiary is 
     entitled under the transferee plan in the form of a single 
     sum distribution.

       ``(ii) Special rule for mergers; etc.--Clause (i) shall 
     apply to plan mergers and other transactions having the 
     effect of a direct transfer, including consolidations of 
     benefits attributable to different employers within a 
     multiple employer plan.
       ``(E) Elimination of form of distribution.--Except to the 
     extent provided in regulations, a defined contribution plan 
     shall not be treated as failing to meet the requirements of 
     this section merely because of the elimination of a form 
     of distribution previously available thereunder. This 
     subparagraph shall not apply to the elimination of a form 
     of distribution with respect to any participant unless--
       ``(i) a single sum payment is available to such participant 
     at the same time or times as the form of distribution being 
     eliminated, and
       ``(ii) such single sum payment is based on the same or 
     greater portion of the participant's account as the form of 
     distribution being eliminated.''.
       (2) Amendment of erisa.--Section 204(g) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is 
     amended by adding at the end the following:
       ``(4)(A) A defined contribution plan (in this subparagraph 
     referred to as the `transferee plan') shall not be treated as 
     failing to meet the requirements of this subsection merely 
     because the transferee plan does not provide some or all of 
     the forms of distribution previously available under another 
     defined contribution plan (in this subparagraph referred to 
     as the `transferor plan') to the extent that--
       ``(i) the forms of distribution previously available under 
     the transferor plan applied to the account of a participant 
     or beneficiary under the transferor plan that was transferred 
     from the transferor plan to the transferee plan pursuant to a 
     direct transfer rather than pursuant to a distribution from 
     the transferor plan;
       ``(ii) the terms of both the transferor plan and the 
     transferee plan authorize the transfer described in clause 
     (i);
       ``(iii) the transfer described in clause (i) was made 
     pursuant to a voluntary election by the participant or 
     beneficiary whose account was transferred to the transferee 
     plan;
       ``(iv) the election described in clause (iii) was made 
     after the participant or beneficiary received a notice 
     describing the consequences of making the election; and
       ``(v) the transferee plan allows the participant or 
     beneficiary described in clause (iii) to receive any 
     distribution to which the participant or beneficiary is 
     entitled under the transferee plan in the form of a single 
     sum distribution.
       ``(B) Subparagraph (A) shall apply to plan mergers and 
     other transactions having the effect of a direct transfer, 
     including consolidations of benefits attributable to 
     different employers within a multiple employer plan.
       ``(5) Except to the extent provided in regulations 
     promulgated by the Secretary of the Treasury, a defined 
     contribution plan shall not be treated as failing to meet the 
     requirements of this subsection merely because of the 
     elimination of a form of distribution previously available 
     thereunder. This paragraph shall not apply to the elimination 
     of a form of distribution with respect to any participant 
     unless--
       ``(A) a single sum payment is available to such participant 
     at the same time or times as the form of distribution being 
     eliminated; and
       ``(B) such single sum payment is based on the same or 
     greater portion of the participant's account as the form of 
     distribution being eliminated.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (b) Regulations.--
       (1) Amendment of internal revenue code.--Paragraph (6)(B) 
     of section 411(d) (relating to accrued benefit not to be 
     decreased by amendment) is amended by inserting after the 
     second sentence the following new sentence: ``The Secretary 
     shall by regulations provide that this subparagraph shall not 
     apply to any plan amendment which reduces or eliminates 
     benefits or subsidies which create significant burdens or 
     complexities for the plan and plan participants and does not 
     adversely affect the rights of any participant in a more than 
     de minimis manner.''.
       (2) Amendment of erisa.--Section 204(g)(2) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)(2)) 
     is amended by inserting before the last sentence the 
     following new sentence: ``The Secretary of the Treasury shall 
     by regulations provide that this paragraph shall not apply to 
     any plan amendment which reduces or eliminates benefits or 
     subsidies which create significant burdens or complexities 
     for the plan and plan participants and does not adversely 
     affect the rights of any participant in a more than de 
     minimis manner.''.
       (3) Secretary directed.--Not later than December 31, 2002, 
     the Secretary of the Treasury is directed to issue 
     regulations under section 411(d)(6) of the Internal Revenue 
     Code of 1986 and section 204(g) of the Employee Retirement 
     Income Security Act of 1974, including the regulations 
     required by the amendment made by this subsection. Such 
     regulations shall apply to plan years beginning after 
     December 31, 2002, or such earlier date as is specified by 
     the Secretary of the Treasury.

     SEC. 436. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

       (a) Modification of Same Desk Exception.--
       (1) Section 401(k).--
       (A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash 
     or deferred arrangements) is amended by striking ``separation 
     from service'' and inserting ``severance from employment''.
       (B) Subparagraph (A) of section 401(k)(10) (relating to 
     distributions upon termination of plan or disposition of 
     assets or subsidiary) is amended to read as follows:
       ``(A) In general.--An event described in this subparagraph 
     is the termination of the plan

[[Page H10927]]

     without establishment or maintenance of another defined 
     contribution plan (other than an employee stock ownership 
     plan as defined in section 4975(e)(7)).''.
       (C) Section 401(k)(10) is amended--
       (i) in subparagraph (B)--

       (I) by striking ``An event'' in clause (i) and inserting 
     ``A termination''; and
       (II) by striking ``the event'' in clause (i) and inserting 
     ``the termination'';

       (ii) by striking subparagraph (C); and
       (iii) by striking ``or disposition of assets or 
     subsidiary'' in the heading.
       (2) Section 403(b).--
       (A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are 
     each amended by striking ``separates from service'' and 
     inserting ``has a severance from employment''.
       (B) The heading for paragraph (11) of section 403(b) is 
     amended by striking ``separation from service'' and inserting 
     ``severance from employment''.
       (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
     amended by striking ``is separated from service'' and 
     inserting ``has a severance from employment''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 437. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED 
                   BENEFIT PLANS.

       (a) 403(b) Plans.--Subsection (b) of section 403 is amended 
     by adding at the end the following new paragraph:
       ``(13) Trustee-to-trustee transfers to purchase permissive 
     service credit.--No amount shall be includible in gross 
     income by reason of a direct trustee-to-trustee transfer to a 
     defined benefit governmental plan (as defined in section 
     414(d)) if such transfer is--
       ``(A) for the purchase of permissive service credit (as 
     defined in section 415(n)(3)(A)) under such plan, or
       ``(B) a repayment to which section 415 does not apply by 
     reason of subsection (k)(3) thereof.''.
       (b) 457 Plans.--Subsection (e) of section 457 is amended by 
     adding after paragraph (16) the following new paragraph:
       ``(17) Trustee-to-trustee transfers to purchase permissive 
     service credit.--No amount shall be includible in gross 
     income by reason of a direct trustee-to-trustee transfer to a 
     defined benefit governmental plan (as defined in section 
     414(d)) if such transfer is--
       ``(A) for the purchase of permissive service credit (as 
     defined in section 415(n)(3)(A)) under such plan, or
       ``(B) a repayment to which section 415 does not apply by 
     reason of subsection (k)(3) thereof.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to trustee-to-trustee transfers after December 
     31, 2000.

     SEC. 438. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF 
                   CASH-OUT AMOUNTS.

       (a) Qualified Plans.--
       (1) Amendment of internal revenue code.--Section 411(a)(11) 
     (relating to restrictions on certain mandatory distributions) 
     is amended by adding at the end the following:
       ``(D) Special rule for rollover contributions.--A plan 
     shall not fail to meet the requirements of this paragraph if, 
     under the terms of the plan, the present value of the 
     nonforfeitable accrued benefit is determined without regard 
     to that portion of such benefit which is attributable to 
     rollover contributions (and earnings allocable thereto). For 
     purposes of this subparagraph, the term `rollover 
     contributions' means any rollover contribution under sections 
     402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 
     457(e)(16).''.
       (2) Amendment of erisa.--Section 203(e) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is 
     amended by adding at the end the following:
       ``(4) A plan shall not fail to meet the requirements of 
     this subsection if, under the terms of the plan, the present 
     value of the nonforfeitable accrued benefit is determined 
     without regard to that portion of such benefit which is 
     attributable to rollover contributions (and earnings 
     allocable thereto). For purposes of this subparagraph, the 
     term `rollover contributions' means any rollover contribution 
     under sections 402(c), 403(a)(4), 403(b)(8), 
     408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue Code 
     of 1986.''.
       (b) Eligible Deferred Compensation Plans.--Clause (i) of 
     section 457(e)(9)(A) is amended by striking ``such amount'' 
     and inserting ``the portion of such amount which is not 
     attributable to rollover contributions (as defined in section 
     411(a)(11)(D))''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 439. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR 
                   SECTION 457 PLANS.

       (a) Minimum Distribution Requirements.--Paragraph (2) of 
     section 457(d) (relating to distribution requirements) is 
     amended to read as follows:
       ``(2) Minimum distribution requirements.--A plan meets the 
     minimum distribution requirements of this paragraph if such 
     plan meets the requirements of section 401(a)(9).''.
       (b) Inclusion in Gross Income.--
       (1) Year of inclusion.--Subsection (a) of section 457 
     (relating to year of inclusion in gross income) is amended to 
     read as follows:
       ``(a) Year of Inclusion in Gross Income.--
       ``(1) In general.--Any amount of compensation deferred 
     under an eligible deferred compensation plan, and any income 
     attributable to the amounts so deferred, shall be includible 
     in gross income only for the taxable year in which such 
     compensation or other income--
       ``(A) is paid to the participant or other beneficiary, in 
     the case of a plan of an eligible employer described in 
     subsection (e)(1)(A), and
       ``(B) is paid or otherwise made available to the 
     participant or other beneficiary, in the case of a plan of an 
     eligible employer described in subsection (e)(1)(B).
       ``(2) Special rule for rollover amounts.--To the extent 
     provided in section 72(t)(9), section 72(t) shall apply to 
     any amount includible in gross income under this 
     subsection.''.
       (2) Conforming amendments.--
       (A) So much of paragraph (9) of section 457(e) as precedes 
     subparagraph (A) is amended to read as follows:
       ``(9) Benefits of tax exempt organization plans not treated 
     as made available by reason of certain elections, etc.--In 
     the case of an eligible deferred compensation plan of an 
     employer described in subsection (e)(1)(B)--''.
       (B) Section 457(d) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special rule for government plan.--An eligible 
     deferred compensation plan of an employer described in 
     subsection (e)(1)(A) shall not be treated as failing to meet 
     the requirements of this subsection solely by reason of 
     making a distribution described in subsection (e)(9)(A).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.
       Subtitle E--Strengthening Pension Security and Enforcement

     SEC. 441. REPEAL OF 155 PERCENT OF CURRENT LIABILITY FUNDING 
                   LIMIT.

       (a) Amendments of Internal Revenue Code.--Section 412(c)(7) 
     (relating to full-funding limitation) is amended--
       (1) by striking ``the applicable percentage'' in 
     subparagraph (A)(i)(I) and inserting ``in the case of plan 
     years beginning before January 1, 2004, the applicable 
     percentage''; and
       (2) by amending subparagraph (F) to read as follows:
       ``(F) Applicable percentage.--For purposes of subparagraph 
     (A)(i)(I), the applicable percentage shall be determined in 
     accordance with the following table:

``In the case of any plan year beginning The applicable percentage is--
      2001........................................................160  
      2002........................................................165  
      2003......................................................170.''.

       (b) Amendment of ERISA.--Section 302(c)(7) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) 
     is amended--
       (1) by striking ``the applicable percentage'' in 
     subparagraph (A)(i)(I) and inserting ``in the case of plan 
     years beginning before January 1, 2004, the applicable 
     percentage''; and
       (2) by amending subparagraph (F) to read as follows:
       ``(F) Applicable percentage.--For purposes of subparagraph 
     (A)(i)(I), the applicable percentage shall be determined in 
     accordance with the following table:

``In the case of any plan year beginning The applicable percentage is--
      2001........................................................160  
      2002........................................................165  
      2003......................................................170.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 442. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND 
                   APPLIED TO ALL DEFINED BENEFIT PLANS.

       (a) In General.--Subparagraph (D) of section 404(a)(1) 
     (relating to special rule in case of certain plans) is 
     amended to read as follows:
       ``(D) Special rule in case of certain plans.--
       ``(i) In general.--In the case of any defined benefit plan, 
     except as provided in regulations, the maximum amount 
     deductible under the limitations of this paragraph shall not 
     be less than the unfunded termination liability (determined 
     as if the proposed termination date referred to in section 
     4041(b)(2)(A)(i)(II) of the Employee Retirement Income 
     Security Act of 1974 were the last day of the plan year).
       ``(ii) Plans with less than 100 participants.--For purposes 
     of this subparagraph, in the case of a plan which has less 
     than 100 participants for the plan year, termination 
     liability shall not include the liability attributable to 
     benefit increases for highly compensated employees (as 
     defined in section 414(q)) resulting from a plan amendment 
     which is made or becomes effective, whichever is later, 
     within the last 2 years before the termination date.
       ``(iii) Rule for determining number of participants.--For 
     purposes of determining whether a plan has more than 100 
     participants, all defined benefit plans maintained by the 
     same employer (or any member of such employer's controlled 
     group (within the meaning of section 412(l)(8)(C))) shall be 
     treated as one plan, but only employees of such member or 
     employer shall be taken into account.
       ``(iv) Plans maintained by professional service 
     employers.--Clause (i) shall not apply to a plan described in 
     section 4021(b)(13) of the Employee Retirement Income 
     Security Act of 1974.''.
       (b) Conforming Amendment.--Paragraph (6) of section 4972(c) 
     is amended to read as follows:
       ``(6) Exceptions.--In determining the amount of 
     nondeductible contributions for any taxable year, there shall 
     not be taken into account so much of the contributions to one 
     or more defined contribution plans which are not deductible 
     when contributed solely because of section 404(a)(7) as does 
     not exceed the greater of--
       ``(A) the amount of contributions not in excess of 6 
     percent of compensation (within the meaning of section 
     404(a)) paid or accrued (during the taxable year for which 
     the contributions were made) to beneficiaries under the 
     plans, or

[[Page H10928]]

       ``(B) the sum of--
       ``(i) the amount of contributions described in section 
     401(m)(4)(A), plus
       ``(ii) the amount of contributions described in section 
     402(g)(3)(A).
     For purposes of this paragraph, the deductible limits under 
     section 404(a)(7) shall first be applied to amounts 
     contributed to a defined benefit plan and then to amounts 
     described in subparagraph (B).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 443. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

       (a) In General.--Subsection (c) of section 4972 (relating 
     to nondeductible contributions) is amended by adding at the 
     end the following new paragraph:
       ``(7) Defined benefit plan exception.--In determining the 
     amount of nondeductible contributions for any taxable year, 
     an employer may elect for such year not to take into account 
     any contributions to a defined benefit plan except to the 
     extent that such contributions exceed the full-funding 
     limitation (as defined in section 412(c)(7), determined 
     without regard to subparagraph (A)(i)(I) thereof). For 
     purposes of this paragraph, the deductible limits under 
     section 404(a)(7) shall first be applied to amounts 
     contributed to defined contribution plans and then to amounts 
     described in this paragraph. If an employer makes an election 
     under this paragraph for a taxable year, paragraph (6) shall 
     not apply to such employer for such taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 444. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED 
                   BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE 
                   BENEFIT ACCRUALS.

       (a) Amendment of Internal Revenue Code.--
       (1) In general.--Chapter 43 (relating to qualified pension, 
     etc., plans) is amended by adding at the end the following 
     new section:

     ``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT 
                   ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

       ``(a) Imposition of Tax.--There is hereby imposed a tax on 
     the failure of any applicable pension plan to meet the 
     requirements of subsection (e) with respect to any applicable 
     individual.
       ``(b) Amount of Tax.--
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) on any failure with respect to any applicable 
     individual shall be $100 for each day in the noncompliance 
     period with respect to such failure.
       ``(2) Noncompliance period.--For purposes of this section, 
     the term `noncompliance period' means, with respect to any 
     failure, the period beginning on the date the failure first 
     occurs and ending on the date the notice to which the failure 
     relates is provided or the failure is otherwise corrected.
       ``(c) Limitations on Amount of Tax.--
       ``(1) Tax not to apply where failure not discovered and 
     reasonable diligence exercised.--No tax shall be imposed by 
     subsection (a) on any failure during any period for which it 
     is established to the satisfaction of the Secretary that any 
     person subject to liability for the  tax under subsection (d) 
     did not know that the failure existed and exercised 
     reasonable diligence to meet the requirements of 
     subsection (e).
       ``(2) Tax not to apply to failures corrected within 30 
     days.--No tax shall be imposed by subsection (a) on any 
     failure if--
       ``(A) any person subject to liability for the tax under 
     subsection (d) exercised reasonable diligence to meet the 
     requirements of subsection (e), and
       ``(B) such person provides the notice described in 
     subsection (e) during the 30-day period beginning on the 
     first date such person knew, or exercising reasonable 
     diligence would have known, that such failure existed.
       ``(3) Overall limitation for unintentional failures.--
       ``(A) In general.--If the person subject to liability for 
     tax under subsection (d) exercised reasonable diligence to 
     meet the requirements of subsection (e), the tax imposed by 
     subsection (a) for failures during the taxable year of the 
     employer (or, in the case of a multiemployer plan, the 
     taxable year of the trust forming part of the plan) shall not 
     exceed $500,000. For purposes of the preceding sentence, all 
     multiemployer plans of which the same trust forms a part 
     shall be treated as 1 plan.
       ``(B) Taxable years in the case of certain controlled 
     groups.--For purposes of this paragraph, if all persons who 
     are treated as a single employer for purposes of this section 
     do not have the same taxable year, the taxable years taken 
     into account shall be determined under principles similar to 
     the principles of section 1561.
       ``(4) Waiver by secretary.--In the case of a failure which 
     is due to reasonable cause and not to willful neglect, the 
     Secretary may waive part or all of the tax imposed by 
     subsection (a) to the extent that the payment of such tax 
     would be excessive or otherwise inequitable relative to the 
     failure involved.
       ``(d) Liability for Tax.--The following shall be liable for 
     the tax imposed by subsection (a):
       ``(1) In the case of a plan other than a multiemployer 
     plan, the employer.
       ``(2) In the case of a multiemployer plan, the plan.
       ``(e) Notice Requirements for Plans Significantly Reducing 
     Benefit Accruals.--
       ``(1) In general.--If an applicable pension plan is amended 
     to provide for a significant reduction in the rate of future 
     benefit accrual, the plan administrator shall provide written 
     notice to each applicable individual (and to each employee 
     organization representing applicable individuals).
       ``(2) Notice.--The notice required by paragraph (1) shall 
     be written in a manner calculated to be understood by the 
     average plan participant and shall provide sufficient 
     information (as determined in accordance with regulations 
     prescribed by the Secretary) to allow applicable individuals 
     to understand the effect of the plan amendment. The Secretary 
     may provide a simplified form of notice for, or exempt from 
     any notice requirement, a plan--
       ``(A) which has fewer than 100 participants who have 
     accrued a benefit under the plan, or
       ``(B) which offers participants the option to choose 
     between the new benefit formula and the old benefit formula.
       ``(3) Timing of notice.--Except as provided in regulations, 
     the notice required by paragraph (1) shall be provided within 
     a reasonable time before the effective date of the plan 
     amendment.
       ``(4) Designees.--Any notice under paragraph (1) may be 
     provided to a person designated, in writing, by the person to 
     which it would otherwise be provided.
       ``(5) Notice before adoption of amendment.--A plan shall 
     not be treated as failing to meet the requirements of 
     paragraph (1) merely because notice is provided before the 
     adoption of the plan amendment if no material modification of 
     the amendment occurs before the amendment is adopted.
       ``(f) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Applicable individual.--The term `applicable 
     individual' means, with respect to any plan amendment--
       ``(A) each participant in the plan, and
       ``(B) any beneficiary who is an alternate payee (within the 
     meaning of section 414(p)(8)) under an applicable qualified 
     domestic relations order (within the meaning of section 
     414(p)(1)(A)),
     whose rate of future benefit accrual under the plan may 
     reasonably be expected to be significantly reduced by such 
     plan amendment.
       ``(2) Applicable pension plan.--The term `applicable 
     pension plan' means--
       ``(A) any defined benefit plan, or
       ``(B) an individual account plan which is subject to the 
     funding standards of section 412.
     Such term shall not include a governmental plan (within the 
     meaning of section 414(d)) or a church plan (within the 
     meaning of section 414(e)) with respect to which the election 
     provided by section 410(d) has not been made.
       ``(3) Early retirement.--A plan amendment which eliminates 
     or significantly reduces any early retirement benefit or 
     retirement-type subsidy (within the meaning of section 
     411(d)(6)(B)(i)) shall be treated as having the effect of 
     significantly reducing the rate of future benefit accrual.
       ``(g) New Technologies.--The Secretary may by regulations 
     allow any notice under paragraph (1) or (2) of subsection (e) 
     to be provided by using new technologies.''
       (2) Clerical amendment.--The table of sections for chapter 
     43 is amended by adding at the end the following new item:

 ``Sec. 4980F. Failure of applicable plans reducing benefit accruals to 
              satisfy notice requirements.''.

       (b) Amendment of ERISA.--Section 204(h) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1054(h)) is 
     amended by adding at the end the following new paragraphs:
       ``(3)(A) An applicable pension plan to which paragraph (1) 
     applies shall not be treated as meeting the requirements of 
     such paragraph unless, in addition to any notice required to 
     be provided to an individual or organization under such 
     paragraph, the plan administrator provides the notice 
     described in subparagraph (B) to each applicable individual 
     (and to each employee organization representing applicable 
     individuals).
       ``(B) The notice required by subparagraph (A) shall be 
     written in a manner calculated to be understood by the 
     average plan participant and shall provide sufficient 
     information (as determined in accordance with regulations 
     prescribed by the Secretary of the Treasury) to allow 
     applicable individuals to understand the effect of the plan 
     amendment. The Secretary of the Treasury may provide a 
     simplified form of notice for, or exempt from any notice 
     requirement, a plan--
       ``(i) which has fewer than 100 participants who have 
     accrued a benefit under the plan, or
       ``(ii) which offers participants the option to choose 
     between the new benefit formula and the old benefit formula.
       ``(C) Except as provided in regulations prescribed by the 
     Secretary of the Treasury, the notice required by 
     subparagraph (A) shall be provided within a reasonable time 
     before the effective date of the plan amendment.
       ``(D) Any notice under subparagraph (A) may be provided to 
     a person designated, in writing, by the person to which it 
     would otherwise be provided.
       ``(E) A plan shall not be treated as failing to meet the 
     requirements of subparagraph (A) merely because notice is 
     provided before the adoption of the plan amendment if no 
     material modification of the amendment occurs before the 
     amendment is adopted.
       ``(F) The Secretary of the Treasury may by regulations 
     allow any notice under subparagraph (A) or (B) to be provided 
     by using new technologies.
       ``(4) For purposes of paragraph (3)--
       ``(A) The term `applicable individual' means, with respect 
     to any plan amendment--
       ``(i) each participant in the plan; and
       ``(ii) any beneficiary who is an alternate payee (within 
     the meaning of section 206(d)(3)(K)) under an applicable 
     qualified domestic relations order (within the meaning of 
     section 206(d)(3)(B)(i)),
     whose rate of future benefit accrual under the plan may 
     reasonably be expected to be significantly reduced by such 
     plan amendment.

[[Page H10929]]

       ``(B) The term `applicable pension plan' means--
       ``(i) any defined benefit plan; or
       ``(ii) an individual account plan which is subject to the 
     funding standards of section 412 of the Internal Revenue Code 
     of 1986.
       ``(C) A plan amendment which eliminates or significantly 
     reduces any early retirement benefit or retirement-type 
     subsidy (within the meaning of subsection (g)(2)(A)) shall be 
     treated as having the effect of significantly reducing the 
     rate of future benefit accrual.''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to plan amendments taking effect on or after the date 
     of the enactment of this Act.
       (2) Transition.--Until such time as the Secretary of the 
     Treasury issues regulations under sections 4980F(e)(2) and 
     (3) of the Internal Revenue Code of 1986 and section 
     204(h)(3) of the Employee Retirement Income Security Act of 
     1974 (as added by the amendments made by this section), a 
     plan shall be treated as meeting the requirements of such 
     sections if it makes a good faith effort to comply with such 
     requirements.
       (3) Special notice rules.--
       (A) In general.--The period for providing any notice 
     required by the amendments made by this section shall not end 
     before the date which is 3 months after the date of the 
     enactment of this Act.
       (B) Reasonable notice.--The amendments made by this section 
     shall not apply to any plan amendment taking effect on or 
     after the date of the enactment of this Act if, before 
     October 25, 2000, notice was provided to participants and 
     beneficiaries adversely affected by the plan amendment (or 
     their representatives) which was reasonably expected to 
     notify them of the nature and effective date of the plan 
     amendment.
       (d) Study.--The Secretary of the Treasury shall prepare a 
     report on the effects of conversions of traditional defined 
     benefit plans to cash balance or hybrid formula plans. Such 
     study shall examine the effect of such conversions on longer 
     service participants, including the incidence and effects of 
     ``wear away'' provisions under which participants earn no 
     additional benefits for a period of time after the 
     conversion. As soon as practicable, but not later than 60 
     days after the date of the enactment of this Act, the 
     Secretary shall submit such report, together with 
     recommendations thereon, to the Committee on Ways and Means 
     and the Committee on Education and the Workforce of the House 
     of Representatives and the Committee on Finance and the 
     Committee on Health, Education, Labor, and Pensions of the 
     Senate.

     SEC. 445. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

       (a) Compensation Limit.--
       (1) In general.--Paragraph (11) of section 415(b) (relating 
     to limitation for defined benefit plans) is amended to read 
     as follows:
       ``(11) Special limitation rule for governmental and 
     multiemployer plans.--In the case of a governmental plan (as 
     defined in section 414(d)) or a multiemployer plan (as 
     defined in section 414(f)), subparagraph (B) of paragraph (1) 
     shall not apply.''.
       (2) Conforming amendment.--Section 415(b)(7) (relating to 
     benefits under certain collectively bargained plans) is 
     amended by inserting ``(other than a multiemployer plan)'' 
     after ``defined benefit plan'' in the matter preceding 
     subparagraph (A).
       (b) Combining and Aggregation of Plans.--
       (1) Combining of plans.--Subsection (f) of section 415 
     (relating to combining of plans) is amended by adding at the 
     end the following:
       ``(3) Exception for multiemployer plans.--Notwithstanding 
     paragraph (1) and subsection (g), a multiemployer plan (as 
     defined in section 414(f)) shall not be combined or 
     aggregated--
       ``(A) with any other plan which is not a multiemployer plan 
     for purposes of applying subsection (b)(1)(B) to such other 
     plan, or
       ``(B) with any other multiemployer plan for purposes of 
     applying the limitations established in this section.''.
       (2) Conforming amendment for aggregation of plans.--
     Subsection (g) of section 415 (relating to aggregation of 
     plans) is amended by striking ``The Secretary'' and inserting 
     ``Except as provided in subsection (f)(3), the Secretary''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 446. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS 
                   TO 401(K) PLANS.

       (a) In General.--Section 1524(b) of the Taxpayer Relief Act 
     of 1997 is amended to read as follows:
       ``(b) Effective Date.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to elective 
     deferrals for plan years beginning after December 31, 1998.
       ``(2) Nonapplication to previously acquired property.--The 
     amendments made by this section shall not apply to any 
     elective deferral which is invested in assets consisting of 
     qualifying employer securities, qualifying employer real 
     property, or both, if such assets were acquired before 
     January 1, 1999.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply as if included in the provision of the Taxpayer 
     Relief Act of 1997 to which it relates.

     SEC. 447. PERIODIC PENSION BENEFITS STATEMENTS.

       (a) In General.--Section 105(a) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1025 (a)) is amended 
     to read as follows:
       ``(a)(1) Except as provided in paragraph (2)--
       ``(A) the administrator of an individual account plan shall 
     furnish a pension benefit statement--
       ``(i) to a plan participant at least once annually, and
       ``(ii) to a plan beneficiary upon written request, and
       ``(B) the administrator of a defined benefit plan shall 
     furnish a pension benefit statement--
       ``(i) at least once every 3 years to each participant with 
     a nonforfeitable accrued benefit who is employed by the 
     employer maintaining the plan at the time the statement is 
     furnished to participants, and
       ``(ii) to a plan participant or plan beneficiary of the 
     plan upon written request.
       ``(2) Notwithstanding paragraph (1), the administrator of a 
     plan to which more than 1 unaffiliated employer is required 
     to contribute shall only be required to furnish a pension 
     benefit statement under paragraph (1) upon the written 
     request of a participant or beneficiary of the plan.
       ``(3) A pension benefit statement under paragraph (1)--
       ``(A) shall indicate, on the basis of the latest available 
     information--
       ``(i) the total benefits accrued, and
       ``(ii) the nonforfeitable pension benefits, if any, which 
     have accrued, or the earliest date on which benefits will 
     become nonforfeitable,
       ``(B) shall be written in a manner calculated to be 
     understood by the average plan participant, and
       ``(C) may be provided in written, electronic, telephonic, 
     or other appropriate form.
       ``(4)(A) In the case of a defined benefit plan, the 
     requirements of paragraph (1)(B)(i) shall be treated as met 
     with respect to a participant if the administrator provides 
     the participant at least once each year with notice of the 
     availability of the pension benefit statement and the ways in 
     which the participant may obtain such statement. Such notice 
     shall be provided in written, electronic, telephonic, or 
     other appropriate form, and may be included with other 
     communications to the participant if done in a manner 
     reasonably designed to attract the attention of the 
     participant.
       ``(B) The Secretary may provide that years in which no 
     employee or former employee benefits (within the meaning of 
     section 410(b) of the Internal Revenue Code of 1986) under 
     the plan need not be taken into account in determining the 3-
     year period under paragraph (1)(B)(i).''.
       (b) Conforming Amendments.--
       (1) Section 105 of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1025) is amended by striking 
     subsection (d).
       (2) Section 105(b) of such Act (29 U.S.C. 1025(b)) is 
     amended to read as follows:
       ``(b) In no case shall a participant or beneficiary of a 
     plan be entitled to more than one statement described in 
     subsection (a)(1)(A) or (a)(1)(B)(ii), whichever is 
     applicable, in any 12-month period.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2001.

     SEC. 448. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION 
                   ESOP.

       (a) In General.--Section 409 (relating to qualifications 
     for tax credit employee stock ownership plans) is amended by 
     redesignating subsection (p) as subsection (q) and by 
     inserting after subsection (o) the following new subsection:
       ``(p) Prohibited Allocations of Securities in an S 
     Corporation.--
       ``(1) In general.--An employee stock ownership plan holding 
     employer securities consisting of stock in an S corporation 
     shall provide that no portion of the assets of the plan 
     attributable to (or allocable in lieu of) such employer 
     securities may, during a nonallocation year, accrue (or be 
     allocated directly or indirectly under any plan of the 
     employer meeting the requirements of section 401(a)) for the 
     benefit of any disqualified person.
       ``(2) Failure to meet requirements.--
       ``(A) In general.--If a plan fails to meet the requirements 
     of paragraph (1), the plan shall be treated as having 
     distributed to any disqualified person the amount allocated 
     to the account of such person in violation of paragraph (1) 
     at the time of such allocation.
       ``(B) Cross reference.--

  ``For excise tax relating to violations of paragraph (1) and 
ownership of synthetic equity, see section 4979A.

       ``(3) Nonallocation year.--For purposes of this 
     subsection--
       ``(A) In general.--The term `nonallocation year' means any 
     plan year of an employee stock ownership plan if, at any time 
     during such plan year--
       ``(i) such plan holds employer securities consisting of 
     stock in an S corporation, and
       ``(ii) disqualified persons own at least 50 percent of the 
     number of shares of stock in the S corporation.
       ``(B) Attribution rules.--For purposes of subparagraph 
     (A)--
       ``(i) In general.--The rules of section 318(a) shall apply 
     for purposes of determining ownership, except that--

       ``(I) in applying paragraph (1) thereof, the members of an 
     individual's family shall include members of the family 
     described in paragraph (4)(D), and
       ``(II) paragraph (4) thereof shall not apply.

       ``(ii) Deemed-owned shares.--Notwithstanding the employee 
     trust exception in section 318(a)(2)(B)(i), an individual 
     shall be treated as owning deemed-owned shares of the 
     individual.
     Solely for purposes of applying paragraph (5), this 
     subparagraph shall be applied after the attribution rules of 
     paragraph (5) have been applied.
       ``(4) Disqualified person.--For purposes of this 
     subsection--
       ``(A) In general.--The term `disqualified person' means any 
     person if--
       ``(i) the aggregate number of deemed-owned shares of such 
     person and the members of such person's family is at least 20 
     percent of the number of deemed-owned shares of stock in the 
     S corporation, or

[[Page H10930]]

       ``(ii) in the case of a person not described in clause (i), 
     the number of deemed-owned shares of such person is at least 
     10 percent of the number of deemed-owned shares of stock in 
     such corporation.
       ``(B) Treatment of family members.--In the case of a 
     disqualified person described in subparagraph (A)(i), any 
     member of such person's family with deemed-owned shares shall 
     be treated as a disqualified person if not otherwise treated 
     as a disqualified person under subparagraph (A).
       ``(C) Deemed-owned shares.--
       ``(i) In general.--The term `deemed-owned shares' means, 
     with respect to any person--

       ``(I) the stock in the S corporation constituting employer 
     securities of an employee stock ownership plan which is 
     allocated to such person under the plan, and
       ``(II) such person's share of the stock in such corporation 
     which is held by such plan but which is not allocated under 
     the plan to participants.

       ``(ii) Person's share of unallocated stock.--For purposes 
     of clause (i)(II), a person's share of unallocated S 
     corporation stock held by such plan is the amount of the 
     unallocated stock which would be allocated to such person if 
     the unallocated stock were allocated to all participants in 
     the same proportions as the most recent stock allocation 
     under the plan.
       ``(D) Member of family.--For purposes of this paragraph, 
     the term `member of the family' means, with respect to any 
     individual--
       ``(i) the spouse of the individual,
       ``(ii) an ancestor or lineal descendant of the individual 
     or the individual's spouse,
       ``(iii) a brother or sister of the individual or the 
     individual's spouse and any lineal descendant of the brother 
     or sister, and
       ``(iv) the spouse of any individual described in clause 
     (ii) or (iii).

     A spouse of an individual who is legally separated from such 
     individual under a decree of divorce or separate maintenance 
     shall not be treated as such individual's spouse for purposes 
     of this subparagraph.
       ``(5) Treatment of synthetic equity.--For purposes of 
     paragraphs (3) and (4), in the case of a person who owns 
     synthetic equity in the S corporation, except to the extent 
     provided in regulations, the shares of stock in such 
     corporation on which such synthetic equity is based shall be 
     treated as outstanding stock in such corporation and deemed-
     owned shares of such person if such treatment of synthetic 
     equity of 1 or more such persons results in--
       ``(A) the treatment of any person as a disqualified person, 
     or
       ``(B) the treatment of any year as a nonallocation year.

     For purposes of this paragraph, synthetic equity shall be 
     treated as owned by a person in the same manner as stock is 
     treated as owned by a person under the rules of paragraphs 
     (2) and (3) of section 318(a). If, without regard to this 
     paragraph, a person is treated as a disqualified person or a 
     year is treated as a nonallocation year, this paragraph shall 
     not be construed to result in the person or year not being so 
     treated.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Employee stock ownership plan.--The term `employee 
     stock ownership plan' has the meaning given such term by 
     section 4975(e)(7).
       ``(B) Employer securities.--The term `employer security' 
     has the meaning given such term by section 409(l).
       ``(C) Synthetic equity.--The term `synthetic equity' means 
     any stock option, warrant, restricted stock, deferred 
     issuance stock right, or similar interest or right that gives 
     the holder the right to acquire or receive stock of the S 
     corporation in the future. Except to the extent provided in 
     regulations, synthetic equity also includes a stock 
     appreciation right, phantom stock unit, or similar right to a 
     future cash payment based on the value of such stock or 
     appreciation in such value.
       ``(7) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this subsection.''.
       (b) Coordination With Section 4975(e)(7).--The last 
     sentence of section 4975(e)(7) (defining employee stock 
     ownership plan) is amended by inserting ``, section 409(p),'' 
     after ``409(n)''.
       (c) Excise Tax.--
       (1) Application of tax.--Subsection (a) of section 4979A 
     (relating to tax on certain prohibited allocations of 
     employer securities) is amended--
       (A) by striking ``or'' at the end of paragraph (1); and
       (B) by striking all that follows paragraph (2) and 
     inserting the following:
       ``(3) there is any allocation of employer securities which 
     violates the provisions of section 409(p), or a nonallocation 
     year described in subsection (e)(2)(C) with respect to an 
     employee stock ownership plan, or
       ``(4) any synthetic equity is owned by a disqualified 
     person in any nonallocation year,
     there is hereby imposed a tax on such allocation or ownership 
     equal to 50 percent of the amount involved.''.
       (2) Liability.--Section 4979A(c) (defining liability for 
     tax) is amended to read as follows:
       ``(c) Liability for Tax.--The tax imposed by this section 
     shall be paid--
       ``(1) in the case of an allocation referred to in paragraph 
     (1) or (2) of subsection (a), by--
       ``(A) the employer sponsoring such plan, or
       ``(B) the eligible worker-owned cooperative,

     which made the written statement described in section 
     664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may 
     be), and
       ``(2) in the case of an allocation or ownership referred to 
     in paragraph (3) or (4) of subsection (a), by the S 
     corporation the stock in which was so allocated or owned.''.
       (3) Definitions.--Section 4979A(e) (relating to 
     definitions) is amended to read as follows:
       ``(e) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Definitions.--Except as provided in paragraph (2), 
     terms used in this section have the same respective meanings 
     as when used in sections 409 and 4978.
       ``(2) Special rules relating to tax imposed by reason of 
     paragraph (3) or (4) of subsection (a).--
       ``(A) Prohibited allocations.--The amount involved with 
     respect to any tax imposed by reason of subsection (a)(3) is 
     the amount allocated to the account of any person in 
     violation of section 409(p)(1).
       ``(B) Synthetic equity.--The amount involved with respect 
     to any tax imposed by reason of subsection (a)(4) is the 
     value of the shares on which the synthetic equity is based.
       ``(C) Special rule during first nonallocation year.--For 
     purposes of subparagraph (A), the amount involved for the 
     first nonallocation year of any employee stock ownership plan 
     shall be determined by taking into account the total value of 
     all the deemed-owned shares of all disqualified persons with 
     respect to such plan.
       ``(D) Statute of limitations.--The statutory period for the 
     assessment of any tax imposed by this section by reason of 
     paragraph (3) or (4) of subsection (a) shall not expire 
     before the date which is 3 years from the later of--
       ``(i) the allocation or ownership referred to in such 
     paragraph giving rise to such tax, or
       ``(ii) the date on which the Secretary is notified of such 
     allocation or ownership.''.
       (d) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to plan years beginning after December 31, 2001.
       (2) Exception for certain plans.--In the case of any--
       (A) employee stock ownership plan established after July 
     11, 2000; or
       (B) employee stock ownership plan established on or before 
     such date if employer securities held by the plan consist of 
     stock in a corporation with respect to which an election 
     under section 1362(a) of the Internal Revenue Code of 1986 is 
     not in effect on such date,

     the amendments made by this section shall apply to plan years 
     ending after July 11, 2000.
                Subtitle F--Reducing Regulatory Burdens

     SEC. 451. MODIFICATION OF TIMING OF PLAN VALUATIONS.

       (a) In General.--Paragraph (9) of section 412(c) (relating 
     to annual valuation) is amended to read as follows:
       ``(9) Annual valuation.--
       ``(A) In general.--For purposes of this section, a 
     determination of experience gains and losses and a valuation 
     of the plan's liability shall be made not less frequently 
     than once every year, except that such determination shall be 
     made more frequently to the extent required in particular 
     cases under regulations prescribed by the Secretary.
       ``(B) Valuation date.--
       ``(i) Current year.--Except as provided in clause (ii), the 
     valuation referred to in subparagraph (A) shall be made as of 
     a date within the plan year to which the valuation refers or 
     within one month prior to the beginning of such year.
       ``(ii) Election to use prior year valuation.--The valuation 
     referred to in subparagraph (A) may be made as of a date 
     within the plan year prior to the year to which the valuation 
     refers if--

       ``(I) an election is in effect under this clause with 
     respect to the plan, and
       ``(II) as of such date, the value of the assets of the plan 
     are not less than 125 percent of the plan's current liability 
     (as defined in paragraph (7)(B)).

       ``(iii) Adjustments.--Information under clause (ii) shall, 
     in accordance with regulations, be actuarially adjusted to 
     reflect significant differences in participants.
       ``(iv) Election.--An election under clause (ii), once made, 
     shall be irrevocable without the consent of the Secretary.''.
       (b) Amendment of ERISA.--Paragraph (9) of section 302(c) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1053(c)) is amended--
       (1) by inserting ``(A)'' after ``(9)''; and
       (2) by adding at the end the following:
       ``(B)(i) Except as provided in clause (ii), the valuation 
     referred to in subparagraph (A) shall be made as of a date 
     within the plan year to which the valuation refers or within 
     one month prior to the beginning of such year.
       ``(ii) The valuation referred to in subparagraph (A) may be 
     made as of a date within the plan year prior to the year to 
     which the valuation refers if--
       ``(I) an election is in effect under this clause with 
     respect to the plan; and
       ``(II) as of such date, the value of the assets of the plan 
     are not less than 125 percent of the plan's current liability 
     (as defined in paragraph (7)(B)).
       ``(iii) Information under clause (ii) shall, in accordance 
     with regulations, be actuarially adjusted to reflect 
     significant differences in participants.
       ``(iv) An election under clause (ii), once made, shall be 
     irrevocable without the consent of the Secretary of the 
     Treasury.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 452. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF 
                   DIVIDEND DEDUCTION.

       (a) In General.--Section 404(k)(2)(A) (defining applicable 
     dividends) is amended by striking ``or'' at the end of clause 
     (ii), by redesignating clause (iii) as clause (iv), and by 
     inserting after clause (ii) the following new clause:

[[Page H10931]]

       ``(iii) is, at the election of such participants or their 
     beneficiaries--

       ``(I) payable as provided in clause (i) or (ii), or
       ``(II) paid to the plan and reinvested in qualifying 
     employer securities, or''.

       (b) Standard for Disallowance.--Section 404(k)(5)(A) 
     (relating to disallowance of deduction) is amended by 
     inserting ``avoidance or'' before ``evasion''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 453. REPEAL OF TRANSITION RULE RELATING TO CERTAIN 
                   HIGHLY COMPENSATED EMPLOYEES.

       (a) In General.--Paragraph (4) of section 1114(c) of the 
     Tax Reform Act of 1986 is hereby repealed.
       (b) Effective Date.--The repeal made by subsection (a) 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 454. EMPLOYEES OF TAX-EXEMPT ENTITIES.

       (a) In General.--The Secretary of the Treasury shall modify 
     Treasury Regulations section 1.410(b)-6(g) to provide that 
     employees of an organization described in section 
     403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who 
     are eligible to make contributions under section 403(b) of 
     such Code pursuant to a salary reduction agreement may be 
     treated as excludable with respect to a plan under section 
     401(k) or (m) of such Code that is provided under the same 
     general arrangement as a plan under such section 401(k), 
     if--
       (1) no employee of an organization described in section 
     403(b)(1)(A)(i) of such Code is eligible to participate in 
     such section 401(k) plan or section 401(m) plan; and
       (2) 95 percent of the employees who are not employees of an 
     organization described in section 403(b)(1)(A)(i) of such 
     Code are eligible to participate in such plan under such 
     section 401(k) or (m).
       (b) Effective Date.--The modification required by 
     subsection (a) shall apply as of the same date set forth in 
     section 1426(b) of the Small Business Job Protection Act of 
     1996.

     SEC. 455. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED 
                   RETIREMENT ADVICE.

       (a) In General.--Subsection (a) of section 132 (relating to 
     exclusion from gross income) is amended by striking ``or'' at 
     the end of paragraph (5), by striking the period at the end 
     of paragraph (6) and inserting ``, or'', and by adding at the 
     end the following new paragraph:
       ``(7) qualified retirement planning services.''.
       (b) Qualified Retirement Planning Services Defined.--
     Section 132 is amended by redesignating subsection (m) as 
     subsection (n) and by inserting after subsection (l) the 
     following:
       ``(m) Qualified Retirement Planning Services.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified retirement planning services' means any retirement 
     planning advice or information provided to an employee and 
     his spouse by an employer maintaining a qualified employer 
     plan.
       ``(2) Nondiscrimination rule.--Subsection (a)(7) shall 
     apply in the case of highly compensated employees only if 
     such services are available on substantially the same terms 
     to each member of the group of employees normally provided 
     education and information regarding the employer's qualified 
     employer plan.
       ``(3) Qualified employer plan.--For purposes of this 
     subsection, the term `qualified employer plan' means a plan, 
     contract, pension, or account described in section 
     219(g)(5).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 456. REPORTING SIMPLIFICATION.

       (a) Simplified Annual Filing Requirement for Owners and 
     Their Spouses.--
       (1) In general.--The Secretary of the Treasury shall modify 
     the requirements for filing annual returns with respect to 
     one-participant retirement plans to ensure that such plans 
     with assets of $250,000 or less as of the close of the plan 
     year need not file a return for that year.
       (2) One-participant retirement plan defined.--For purposes 
     of this subsection, the term ``one-participant retirement 
     plan'' means a retirement plan that--
       (A) on the first day of the plan year--
       (i) covered only the employer (and the employer's spouse) 
     and the employer owned the entire business (whether or not 
     incorporated); or
       (ii) covered only one or more partners (and their spouses) 
     in a business partnership (including partners in an S or C 
     corporation);
       (B) meets the minimum coverage requirements of section 
     410(b) of the Internal Revenue Code of 1986 without being 
     combined with any other plan of the business that covers the 
     employees of the business;
       (C) does not provide benefits to anyone except the employer 
     (and the employer's spouse) or the partners (and their 
     spouses);
       (D) does not cover a business that is a member of an 
     affiliated service group, a controlled group of corporations, 
     or a group of businesses under common control; and
       (E) does not cover a business that leases employees.
       (3) Other definitions.--Terms used in paragraph (2) which 
     are also used in section 414 of the Internal Revenue Code of 
     1986 shall have the respective meanings given such terms by 
     such section.
       (b) Simplified Annual Filing Requirement for Plans With 
     Fewer Than 25 Employees.--In the case of plan years beginning 
     after December 31, 2001, the Secretary of the Treasury shall 
     provide for the filing of a simplified annual return for any 
     retirement plan which covers less than 25 employees on the 
     first day of a plan year and meets the requirements described 
     in subparagraphs (B), (D), and (E) of subsection (a)(2).
       (c) Effective Date.--The provisions of this section shall 
     take effect on January 1, 2001.

     SEC. 457. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE RESOLUTION 
                   SYSTEM.

       The Secretary of the Treasury shall continue to update and 
     improve the Employee Plans Compliance Resolution System (or 
     any successor program) giving special attention to--
       (1) increasing the awareness and knowledge of small 
     employers concerning the availability and use of the program;
       (2) taking into account special concerns and circumstances 
     that small employers face with respect to compliance and 
     correction of compliance failures;
       (3) extending the duration of the self-correction period 
     under the Administrative Policy Regarding Self-Correction for 
     significant compliance failures;
       (4) expanding the availability to correct insignificant 
     compliance failures under the Administrative Policy Regarding 
     Self-Correction during audit; and
       (5) assuring that any tax, penalty, or sanction that is 
     imposed by reason of a compliance failure is not excessive 
     and bears a reasonable relationship to the nature, extent, 
     and severity of the failure.

     SEC. 458. REPEAL OF THE MULTIPLE USE TEST.

       (a) In General.--Paragraph (9) of section 401(m) is amended 
     to read as follows:
       ``(9) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this subsection and subsection (k), including regulations 
     permitting appropriate aggregation of plans and 
     contributions.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 459. FLEXIBILITY IN NONDISCRIMINATION, COVERAGE, AND 
                   LINE OF BUSINESS RULES.

       (a) Nondiscrimination.--
       (1) In general.--The Secretary of the Treasury shall, by 
     regulation, provide that a plan shall be deemed to satisfy 
     the requirements of section 401(a)(4) of the Internal Revenue 
     Code of 1986 if such plan satisfies the facts and 
     circumstances test under section 401(a)(4) of such Code, as 
     in effect before January 1, 1994, but only if--
       (A) the plan satisfies conditions prescribed by the 
     Secretary to appropriately limit the availability of such 
     test; and
       (B) the plan is submitted to the Secretary for a 
     determination of whether it satisfies such test.
     Subparagraph (B) shall only apply to the extent provided by 
     the Secretary.
       (2) Effective dates.--
       (A) Regulations.--The regulation required by paragraph (1) 
     shall apply to years beginning after December 31, 2002.
       (B) Conditions of availability.--Any condition of 
     availability prescribed by the Secretary under paragraph 
     (1)(A) shall not apply before the first year beginning not 
     less than 120 days after the date on which such condition is 
     prescribed.
       (b) Coverage Test.--
       (1) In general.--Section 410(b)(1) (relating to minimum 
     coverage requirements) is amended by adding at the end the 
     following:
       ``(D) In the case that the plan fails to meet the 
     requirements of subparagraphs (A), (B) and (C), the plan--
       ``(i) satisfies subparagraph (B), as in effect immediately 
     before the enactment of the Tax Reform Act of 1986,
       ``(ii) is submitted to the Secretary for a determination of 
     whether it satisfies the requirement described in clause (i), 
     and
       ``(iii) satisfies conditions prescribed by the Secretary by 
     regulation that appropriately limit the availability of this 
     subparagraph.
     Clause (ii) shall apply only to the extent provided by the 
     Secretary.''.
       (2) Effective dates.--
       (A) In general.--The amendment made by paragraph (1) shall 
     apply to years beginning after December 31, 2002.
       (B) Conditions of availability.--Any condition of 
     availability prescribed by the Secretary under regulations 
     prescribed by the Secretary under section 410(b)(1)(D) of the 
     Internal Revenue Code of 1986 shall not apply before the 
     first year beginning not less than 120 days after the date on 
     which such condition is prescribed.
       (c) Line of Business Rules.--The Secretary of the Treasury 
     shall, on or before December 31, 2002, modify the existing 
     regulations issued under section 414(r) of the Internal 
     Revenue Code of 1986 in order to expand (to the extent that 
     the Secretary determines appropriate) the ability of a 
     pension plan to demonstrate compliance with the line of 
     business requirements based upon the facts and circumstances 
     surrounding the design and operation of the plan, even though 
     the plan is unable to satisfy the mechanical tests currently 
     used to determine compliance.

     SEC. 460. EXTENSION TO ALL GOVERNMENTAL PLANS OF MORATORIUM 
                   ON APPLICATION OF CERTAIN NONDISCRIMINATION 
                   RULES APPLICABLE TO STATE AND LOCAL PLANS.

       (a) In General.--
       (1) Subparagraph (G) of section 401(a)(5) and subparagraph 
     (H) of section 401(a)(26) are each amended by striking 
     ``section 414(d))'' and all that follows and inserting 
     ``section 414(d)).''.
       (2) Subparagraph (G) of section 401(k)(3) and paragraph (2) 
     of section 1505(d) of the Taxpayer Relief Act of 1997 are 
     each amended by striking ``maintained by a State or local 
     government or political subdivision thereof (or agency or 
     instrumentality thereof)''.
       (b) Conforming Amendments.--
       (1) The heading for subparagraph (G) of section 401(a)(5) 
     is amended to read as follows: ``Governmental plans''.
       (2) The heading for subparagraph (H) of section 401(a)(26) 
     is amended to read as follows: ``Exception for governmental 
     plans''.

[[Page H10932]]

       (3) Subparagraph (G) of section 401(k)(3) is amended by 
     inserting ``Governmental plans.--'' after ``(G)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 461. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

       (a) Expansion of Period.--
       (1) Amendment of internal revenue code.--
       (A) In general.--Subparagraph (A) of section 417(a)(6) is 
     amended by striking ``90-day'' and inserting ``180-day''.
       (B) Modification of regulations.--The Secretary of the 
     Treasury shall modify the regulations under sections 402(f), 
     411(a)(11), and 417 of the Internal Revenue Code of 1986 to 
     substitute ``180 days'' for ``90 days'' each place it appears 
     in Treasury Regulations sections 1.402(f)-1, 1.411(a)-
     11(c), and 1.417(e)-1(b).
       (2) Amendment of erisa.--Section 205(c)(7)(A) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1055(c)(7)(A)) is amended by striking ``90-day'' and 
     inserting ``180-day''.
       (3) Effective date.--The amendments made by paragraph 
     (1)(A) and (2) and the modifications required by paragraph 
     (1)(B) shall apply to years beginning after December 31, 
     2000.
       (b) Consent Regulation Inapplicable to Certain 
     Distributions.--
       (1) In general.--The Secretary of the Treasury shall modify 
     the regulations under section 411(a)(11) of the Internal 
     Revenue Code of 1986 to provide that the description of a 
     participant's right, if any, to defer receipt of a 
     distribution shall also describe the consequences of failing 
     to defer such receipt.
       (2) Effective date.--The modifications required by 
     paragraph (1) shall apply to years beginning after December 
     31, 2000.
       (c) Disclosure of Optional Forms of Benefits.--
       (1) Regulations.--
       (A) In general.--The Secretary of the Treasury shall, not 
     later than December 31, 2001, issue final regulations under 
     section 417(a)(3) of the Internal Revenue Code of 1986 which 
     provide that if--
       (i) a defined benefit plan offers both a qualified joint 
     and survivor annuity and a single sum optional form of 
     benefit, and
       (ii) the distributable amount under such single sum option 
     is less than the present value (determined in accordance with 
     section 417(e) of such Code) of the qualified joint and 
     survivor annuity commencing as of the same annuity starting 
     date, the written explanation required by section 
     417(a)(3)(A) of such Code shall include sufficient 
     information to allow the participant to understand the 
     difference between the amount of the single sum and such 
     present value.
       (B) Unmarried participants.--If the plan offers an 
     unmarried participant one or more annuity options that are 
     substantially more valuable than the qualified joint and 
     survivor annuity offered by the plan, the comparison required 
     under subparagraph (A) shall be made between the single sum 
     option and the most valuable of the other annuity options 
     offered by the plan.
       (C) Form.--Any information required under this paragraph 
     shall be provided in a manner calculated to be reasonably 
     understood by the average plan participant.
       (2) Effective date.--Regulations issued under paragraph (1) 
     shall only apply to distributions made not earlier than 6 
     months after the date such regulations are issued.

     SEC. 462. ANNUAL REPORT DISSEMINATION.

       (a) Report Available Through Electronic Means.--Section 
     104(b)(3) of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1024(b)(3)) is amended by adding at the end 
     the following new sentence: ``The requirement to furnish 
     information under the previous sentence shall be satisfied if 
     the administrator makes such information reasonably available 
     through electronic means or other new technology.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to reports for years beginning after December 31, 
     1999.

     SEC. 463. TECHNICAL CORRECTIONS TO SAVER ACT.

       Section 517 of the Employee Retirement Income Security Act 
     of 1974 (29 U.S.C. 1147) is amended--
       (1) in subsection (a), by striking ``2001 and 2005 on or 
     after September 1 of each year involved'' and inserting 
     ``2001, 2005, and 2009 in the month of September of each year 
     involved'';
       (2) in subsection (b), by adding at the end the following 
     new sentence: ``To effectuate the purposes of this paragraph, 
     the Secretary may enter into a cooperative agreement, 
     pursuant to the Federal Grant and Cooperative Agreement Act 
     of 1977 (31 U.S.C. 6301 et seq.), with the American Savings 
     Education Council.'';
       (3) in subsection (e)(2)--
       (A) by striking ``Committee on Labor and Human Resources'' 
     in subparagraph (D) and inserting ``Committee on Health, 
     Education, Labor, and Pensions'';
       (B) by striking subparagraph (F) and inserting the 
     following:
       ``(F) the Chairman and Ranking Member of the Subcommittee 
     on Labor, Health and Human Services, and Education of the 
     Committee on Appropriations of the House of Representatives 
     and the Chairman and Ranking Member of the Subcommittee on 
     Labor, Health and Human Services, and Education of the 
     Committee on Appropriations of the Senate;'';
       (C) by redesignating subparagraph (G) as subparagraph (J); 
     and
       (D) by inserting after subparagraph (F) the following new 
     subparagraphs:
       ``(G) the Chairman and Ranking Member of the Committee on 
     Finance of the Senate;
       ``(H) the Chairman and Ranking Member of the Committee on 
     Ways and Means of the House of Representatives;
       ``(I) the Chairman and Ranking Member of the Subcommittee 
     on Employer-Employee Relations of the Committee on Education 
     and the Workforce of the House of Representatives; and'';
       (4) in subsection (e)(3)(A)--
       (A) by striking ``There shall be no more than 200 
     additional participants.'' and inserting ``The participants 
     in the National Summit shall also include additional 
     participants appointed under this subparagraph.'';
       (B) by striking ``one-half shall be appointed by the 
     President,'' in clause (i) and inserting ``not more than 100 
     participants shall be appointed under this clause by the 
     President,'', and by striking ``and'' at the end of clause 
     (i);
       (C) by striking ``one-half shall be appointed by the 
     elected leaders of Congress'' in clause (ii) and inserting 
     ``not more than 100 participants shall be appointed under 
     this clause by the elected leaders of Congress'', and by 
     striking the period at the end of clause (ii) and inserting 
     ``; and'';
       (D) by adding at the end the following new clause:
       ``(iii) The President, in consultation with the elected 
     leaders of Congress referred to in subsection (a), may 
     appoint under this clause additional participants to the 
     National Summit. The number of such additional participants 
     appointed under this clause may not exceed the lesser of 3 
     percent of the total number of all additional participants 
     appointed under this paragraph, or 10. Such additional 
     participants shall be appointed from persons nominated by the 
     organization referred to in subsection (b)(2) which is made 
     up of private sector businesses and associations partnered 
     with Government entities to promote long term financial 
     security in retirement through savings and with which the 
     Secretary is required thereunder to consult and cooperate and 
     shall not be Federal, State, or local government 
     employees.'';
       (5) in subsection (e)(3)(B), by striking ``January 31, 
     1998'' in subparagraph (B) and inserting ``May 1, 2001, May 
     1, 2005, and May 1, 2009, for each of the subsequent summits, 
     respectively'';
       (6) in subsection (f)(1)(C), by inserting ``, no later than 
     90 days prior to the date of the commencement of the National 
     Summit,'' after ``comment'' in paragraph (1)(C);
       (7) in subsection (g), by inserting ``, in consultation 
     with the congressional leaders specified in subsection 
     (e)(2),'' after ``report'';
       (8) in subsection (i)--
       (A) by striking ``beginning on or after October 1, 1997'' 
     in paragraph (1) and inserting ``2001, 2005, and 2009''; and
       (B) by adding at the end the following new paragraph:
       ``(3) Reception and representation authority.--The 
     Secretary is hereby granted reception and representation 
     authority limited specifically to the events at the National 
     Summit. The Secretary shall use any private contributions 
     accepted in connection with the National Summit prior to 
     using funds appropriated for purposes of the National Summit 
     pursuant to this paragraph.''; and
       (9) in subsection (k)--
       (A) by striking ``shall enter into a contract on a sole-
     source basis'' and inserting ``may enter into a contract on a 
     sole-source basis''; and
       (B) by striking ``fiscal year 1998'' and inserting ``fiscal 
     years 2001, 2005, and 2009''.

     SEC. 464. STUDY OF PENSION COVERAGE.

       Not later than 5 years after the date of the enactment of 
     this Act, the Secretary of the Treasury shall submit a report 
     to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate a 
     report on the effect of the provisions of the Retirement 
     Savings and Pension Coverage Act of 2000 on pension coverage, 
     including--
       (1) any expansion of coverage for low- and middle-income 
     workers;
       (2) levels of pension benefits;
       (3) quality of pension coverage;
       (4) worker's access to and participation in plans; and
       (5) retirement security.
                   Subtitle G--Other ERISA Provisions

     SEC. 471. MISSING PARTICIPANTS.

       (a) In General.--Section 4050 of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1350) is amended by 
     redesignating subsection (c) as subsection (e) and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Multiemployer Plans.--The corporation shall prescribe 
     rules similar to the rules in subsection (a) for 
     multiemployer plans covered by this title that terminate 
     under section 4041A.
       ``(d) Plans Not Otherwise Subject to Title.--
       ``(1) Transfer to corporation.--The plan administrator of a 
     plan described in paragraph (4) may elect to transfer a 
     missing participant's benefits to the corporation upon 
     termination of the plan.
       ``(2) Information to the corporation.--To the extent 
     provided in regulations, the plan administrator of a plan 
     described in paragraph (4) shall, upon termination of the 
     plan, provide the corporation information with respect to 
     benefits of a missing participant if the plan transfers such 
     benefits--
       ``(A) to the corporation, or
       ``(B) to an entity other than the corporation or a plan 
     described in paragraph (4)(B)(ii).
       ``(3) Payment by the corporation.--If benefits of a missing 
     participant were transferred to the corporation under 
     paragraph (1), the corporation shall, upon location of the 
     participant or beneficiary, pay to the participant or 
     beneficiary the amount transferred (or the appropriate 
     survivor benefit) either--
       ``(A) in a single sum (plus interest), or
       ``(B) in such other form as is specified in regulations of 
     the corporation.
       ``(4) Plans described.--A plan is described in this 
     paragraph if--

[[Page H10933]]

       ``(A) the plan is a pension plan (within the meaning of 
     section 3(2))--
       ``(i) to which the provisions of this section do not apply 
     (without regard to this subsection), and
       ``(ii) which is not a plan described in paragraphs (2) 
     through (11) of section 4021(b), and
       ``(B) at the time the assets are to be distributed upon 
     termination, the plan--
       ``(i) has missing participants, and
       ``(ii) has not provided for the transfer of assets to pay 
     the benefits of all missing participants to another pension 
     plan (within the meaning of section 3(2)).
       ``(5) Certain provisions not to apply.--Subsections (a)(1) 
     and (a)(3) shall not apply to a plan described in paragraph 
     (4).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions made after final regulations 
     implementing subsections (c) and (d) of section 4050 of the 
     Employee Retirement Income Security Act of 1974 (as added by 
     subsection (a)), respectively, are prescribed.

     SEC. 472. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL 
                   EMPLOYERS.

       (a) In General.--Subparagraph (A) of section 4006(a)(3) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1306(a)(3)(A)) is amended--
       (1) in clause (i), by inserting ``other than a new single-
     employer plan (as defined in subparagraph (F)) maintained by 
     a small employer (as so defined),'' after ``single-employer 
     plan,'',
       (2) in clause (iii), by striking the period at the end and 
     inserting ``, and'', and
       (3) by adding at the end the following new clause:
       ``(iv) in the case of a new single-employer plan (as 
     defined in subparagraph (F)) maintained by a small employer 
     (as so defined) for the plan year, $5 for each individual who 
     is a participant in such plan during the plan year.''.
       (b) Definition of New Single-Employer Plan.--Section 
     4006(a)(3) of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1306(a)(3)) is amended by adding at the end 
     the following new subparagraph:
       ``(F)(i) For purposes of this paragraph, a single-employer 
     plan maintained by a contributing sponsor shall be treated as 
     a new single-employer plan for each of its first 5 plan years 
     if, during the 36-month period ending on the date of the 
     adoption of such plan, the sponsor or any member of such 
     sponsor's controlled group (or any predecessor of either) 
     did not establish or maintain a plan to which this title 
     applies with respect to which benefits were accrued for 
     substantially the same employees as are in the new single-
     employer plan.
       ``(ii)(I) For purposes of this paragraph, the term `small 
     employer' means an employer which on the first day of any 
     plan year has, in aggregation with all members of the 
     controlled group of such employer, 100 or fewer employees.
       ``(II) In the case of a plan maintained by two or more 
     contributing sponsors that are not part of the same 
     controlled group, the employees of all contributing sponsors 
     and controlled groups of such sponsors shall be aggregated 
     for purposes of determining whether any contributing sponsor 
     is a small employer.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plans established after December 31, 2000.

     SEC. 473. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND 
                   SMALL PLANS.

       (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1306(a)(3)(E)) is amended by adding at the end the 
     following new clause:
       ``(v) In the case of a new defined benefit plan, the amount 
     determined under clause (ii) for any plan year shall be an 
     amount equal to the product of the amount determined under 
     clause (ii) and the applicable percentage. For purposes of 
     this clause, the term `applicable percentage' means--
       ``(I) 0 percent, for the first plan year.
       ``(II) 20 percent, for the second plan year.
       ``(III) 40 percent, for the third plan year.
       ``(IV) 60 percent, for the fourth plan year.
       ``(V) 80 percent, for the fifth plan year.

     For purposes of this clause, a defined benefit plan (as 
     defined in section 3(35)) maintained by a contributing 
     sponsor shall be treated as a new defined benefit plan for 
     each of its first 5 plan years if, during the 36-month period 
     ending on the date of the adoption of the plan, the sponsor 
     and each member of any controlled group including the sponsor 
     (or any predecessor of either) did not establish or maintain 
     a plan to which this title applies with respect to which 
     benefits were accrued for substantially the same employees as 
     are in the new plan.''.
       (b) Small Plans.--Paragraph (3) of section 4006(a) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1306(a)), as amended by section 472(b), is amended--
       (1) by striking ``The'' in subparagraph (E)(i) and 
     inserting ``Except as provided in subparagraph (G), the'', 
     and
       (2) by inserting after subparagraph (F) the following new 
     subparagraph:
       ``(G)(i) In the case of an employer who has 25 or fewer 
     employees on the first day of the plan year, the additional 
     premium determined under subparagraph (E) for each 
     participant shall not exceed $5 multiplied by the number of 
     participants in the plan as of the close of the preceding 
     plan year.
       ``(ii) For purposes of clause (i), whether an employer has 
     25 or fewer employees on the first day of the plan year is 
     determined taking into consideration all of the employees of 
     all members of the contributing sponsor's controlled group. 
     In the case of a plan maintained by two or more 
     contributing sponsors, the employees of all contributing 
     sponsors and their controlled groups shall be aggregated 
     for purposes of determining whether the 25-or-fewer-
     employees limitation has been satisfied.''.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendments made by subsection (a) 
     shall apply to plans established after December 31, 2000.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 474. AUTHORIZATION FOR PBGC TO PAY INTEREST ON PREMIUM 
                   OVERPAYMENT REFUNDS.

       (a) In General.--Section 4007(b) of the Employment 
     Retirement Income Security Act of 1974 (29 U.S.C. 1307(b)) is 
     amended--
       (1) by striking ``(b)'' and inserting ``(b)(1)'', and
       (2) by inserting at the end the following new paragraph:
       ``(2) The corporation is authorized to pay, subject to 
     regulations prescribed by the corporation, interest on the 
     amount of any overpayment of premium refunded to a designated 
     payor. Interest under this paragraph shall be calculated at 
     the same rate and in the same manner as interest is 
     calculated for underpayments under paragraph (1).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to interest accruing for periods beginning not 
     earlier than the date of the enactment of this Act.

     SEC. 475. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

       (a) Modification of Phase-In of Guarantee.--Section 
     4022(b)(5) of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1322(b)(5)) is amended to read as follows:
       ``(5)(A) For purposes of this paragraph, the term `majority 
     owner' means an individual who, at any time during the 60-
     month period ending on the date the determination is being 
     made--
       ``(i) owns the entire interest in an unincorporated trade 
     or business,
       ``(ii) in the case of a partnership, is a partner who owns, 
     directly or indirectly, 50 percent or more of either the 
     capital interest or the profits interest in such partnership, 
     or
       ``(iii) in the case of a corporation, owns, directly or 
     indirectly, 50 percent or more in value of either the voting 
     stock of that corporation or all the stock of that 
     corporation.

     For purposes of clause (iii), the constructive ownership 
     rules of section 1563(e) of the Internal Revenue Code of 1986 
     shall apply (determined without regard to section 
     1563(e)(3)(C)).
       ``(B) In the case of a participant who is a majority owner, 
     the amount of benefits guaranteed under this section shall 
     equal the product of--
       ``(i) a fraction (not to exceed 1) the numerator of which 
     is the number of years from the later of the effective date 
     or the adoption date of the plan to the termination date, and 
     the denominator of which is 10, and
       ``(ii) the amount of benefits that would be guaranteed 
     under this section if the participant were not a majority 
     owner.''.
       (b) Modification of Allocation of Assets.--
       (1) Section 4044(a)(4)(B) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 
     striking ``section 4022(b)(5)'' and inserting ``section 
     4022(b)(5)(B)''.
       (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is 
     amended--
       (A) by striking ``(5)'' in paragraph (2) and inserting 
     ``(4), (5),'', and
       (B) by redesignating paragraphs (3) through (6) as 
     paragraphs (4) through (7), respectively, and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) If assets available for allocation under paragraph 
     (4) of subsection (a) are insufficient to satisfy in full the 
     benefits of all individuals who are described in that 
     paragraph, the assets shall be allocated first to benefits 
     described in subparagraph (A) of that paragraph. Any 
     remaining assets shall then be allocated to benefits 
     described in subparagraph (B) of that paragraph. If assets 
     allocated to such subparagraph (B) are insufficient to 
     satisfy in full the benefits described in that subparagraph, 
     the assets shall be allocated pro rata among individuals on 
     the basis of the present value (as of the termination date) 
     of their respective benefits described in that 
     subparagraph.''.
       (c) Conforming Amendments.--
       (1) Section 4021 of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1321) is amended--
       (A) in subsection (b)(9), by striking ``as defined in 
     section 4022(b)(6)'', and
       (B) by adding at the end the following new subsection:
       ``(d) For purposes of subsection (b)(9), the term 
     `substantial owner' means an individual who, at any time 
     during the 60-month period ending on the date the 
     determination is being made--
       ``(1) owns the entire interest in an unincorporated trade 
     or business,
       ``(2) in the case of a partnership, is a partner who owns, 
     directly or indirectly, more than 10 percent of either the 
     capital interest or the profits interest in such partnership, 
     or
       ``(3) in the case of a corporation, owns, directly or 
     indirectly, more than 10 percent in value of either the 
     voting stock of that corporation or all the stock of that 
     corporation.

     For purposes of paragraph (3), the constructive ownership 
     rules of section 1563(e) of the Internal Revenue Code of 
     1986 shall apply (determined without regard to section 
     1563(e)(3)(C)).''.
       (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) 
     is amended by striking ``section 4022(b)(6)'' and inserting 
     ``section 4021(d)''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to plan 
     terminations--
       (A) under section 4041(c) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C.

[[Page H10934]]

     1341(c)) with respect to which notices of intent to terminate 
     are provided under section 4041(a)(2) of such Act (29 U.S.C. 
     1341(a)(2)) after December 31, 2000, and
       (B) under section 4042 of such Act (29 U.S.C. 1342) with 
     respect to which proceedings are instituted by the 
     corporation after such date.
       (2) Conforming amendments.--The amendments made by 
     subsection (c) shall take effect on January 1, 2001.

     SEC. 476. MULTIEMPLOYER PLAN BENEFITS GUARANTEE.

       (a) In General.--Section 4022A(c) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1322A(c)) 
     is amended--
       (1) by striking ``$5'' each place it appears in paragraph 
     (1) and inserting ``$11'',
       (2) by striking ``$15'' in paragraph (1) and inserting 
     ``$33'', and
       (3) by striking paragraphs (2), (5), and (6) and by 
     redesignating paragraphs (3) and (4) as paragraphs (2) and 
     (3), respectively.
       (b) Conforming Amendment.--Section 4244(e)(4) of such Act 
     (29 U.S.C. 1424(e)(4)) is amended by striking ``and without 
     regard to section 4022A(c)(2)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to benefits payable after the date of the 
     enactment of this Act, except that such amendments shall not 
     apply to any multiemployer plan that has received financial 
     assistance (within the meaning of section 4261 of the 
     Employee Retirement Income Security Act of 1974) within the 
     1-year period ending on the date of the enactment of this 
     Act.

     SEC. 477. CIVIL PENALTIES FOR BREACH OF FIDUCIARY 
                   RESPONSIBILITY.

       (a) Imposition and Amount of Penalty Made Discretionary.--
     Section 502(l)(1) of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1132(l)(1)) is amended--
       (1) by striking ``shall'' and inserting ``may'', and
       (2) by striking ``equal to'' and inserting ``not greater 
     than''.
       (b) Applicable Recovery Amount.--Section 502(l)(2) of such 
     Act (29 U.S.C. 1132(l)(2)) is amended to read as follows:
       ``(2) For purposes of paragraph (1), the term `applicable 
     recovery amount' means any amount which is recovered from any 
     fiduciary or other person (or from any other person on behalf 
     of any such fiduciary or other person) with respect to a 
     breach or violation described in paragraph (1) on or after 
     the 30th day following receipt by such fiduciary or other 
     person of written notice from the Secretary of the violation, 
     whether paid voluntarily or by order of a court in a judicial 
     proceeding instituted by the Secretary under subsection 
     (a)(2) or (a)(5). The Secretary may, in the Secretary's sole 
     discretion, extend the 30-day period described in the 
     preceding sentence.''.
       (c) Other Rules.--Section 502(l) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1132(l)) is amended by 
     adding at the end the following new paragraph:
       ``(5) A person shall be jointly and severally liable for 
     the penalty described in paragraph (1) to the same extent 
     that such person is jointly and severally liable for the 
     applicable recovery amount on which the penalty is based.
       ``(6) No penalty shall be assessed under this subsection 
     unless the person against whom the penalty is assessed is 
     given notice and opportunity for a hearing with respect to 
     the violation and applicable recovery amount.''.
       (d) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to any breach of fiduciary responsibility or other 
     violation of part 4 of subtitle B of title I of the Employee 
     Retirement Income Security Act of 1974 occurring on or after 
     the date of enactment of this Act.
       (2) Transition rule.--In applying the amendment made by 
     subsection (b) (relating to applicable recovery amount), a 
     breach or other violation occurring before the date of 
     enactment of this Act which continues after the 180th day 
     after such date (and which may have been discontinued at any 
     time during its existence) shall be treated as having 
     occurred after such date of enactment.

     SEC. 478. BENEFIT SUSPENSION NOTICE.

       (a) Modification of Regulation.--The Secretary of Labor 
     shall modify the regulation under section 203(a)(3)(B) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1053(a)(3)(B)) to provide that the notification required by 
     such regulation--
       (1) in the case of an employee who returns to work for a 
     former employer after commencement of payment of benefits 
     under the plan shall--
       (A) be made during the first calendar month or payroll 
     period in which the plan withholds payments, and
       (B) if a reduced rate of future benefit accruals will apply 
     to the returning employee (as of the first date of 
     participation in the plan by the employee after returning to 
     work), include a statement that the rate of future benefit 
     accruals will be reduced, and
       (2) in the case of any employee who is not described in 
     paragraph (1)--
       (A) may be included in the summary plan description for the 
     plan furnished in accordance with section 104(b) of such Act 
     (29 U.S.C. 1024(b)), rather than in a separate notice, and
       (B) need not include a copy of the relevant plan 
     provisions.
       (b) Effective Date.--The modification made under this 
     section shall apply to plan years beginning after December 
     31, 2000.
                      Subtitle H--Plan Amendments

     SEC. 481. PROVISIONS RELATING TO PLAN AMENDMENTS.

       (a) In General.--If this section applies to any plan or 
     contract amendment--
       (1) such plan or contract shall be treated as being 
     operated in accordance with the terms of the plan during the 
     period described in subsection (b)(2)(A); and
       (2) except as provided by the Secretary of the Treasury, 
     such plan shall not fail to meet the requirements of section 
     411(d)(6) of the Internal Revenue Code of 1986 or section 
     204(g) of the Employee Retirement Income Security Act of 1974 
     by reason of such amendment.
       (b) Amendments to Which Section Applies.--
       (1) In general.--This section shall apply to any amendment 
     to any plan or annuity contract which is made--
       (A) pursuant to any amendment made by this title, or 
     pursuant to any regulation issued under this title; and
       (B) on or before the last day of the first plan year 
     beginning on or after January 1, 2003.

     In the case of a governmental plan (as defined in section 
     414(d) of the Internal Revenue Code of 1986), this paragraph 
     shall be applied by substituting ``2005'' for ``2003''.
       (2) Conditions.--This section shall not apply to any 
     amendment unless--
       (A) during the period--
       (i) beginning on the date the legislative or regulatory 
     amendment described in paragraph (1)(A) takes effect (or in 
     the case of a plan or contract amendment not required by such 
     legislative or regulatory amendment, the effective date 
     specified by the plan); and
       (ii) ending on the date described in paragraph (1)(B) (or, 
     if earlier, the date the plan or contract amendment is 
     adopted),
     the plan or contract is operated as if such plan or contract 
     amendment were in effect; and
       (B) such plan or contract amendment applies retroactively 
     for such period.
                TITLE V--SCHOOL CONSTRUCTION PROVISIONS

     SEC. 501. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION 
                   FOR GOVERNMENTAL BONDS USED TO FINANCE 
                   EDUCATIONAL FACILITIES.

       (a) In General.--Section 148(f )(4)(D)(vii) (relating to 
     increase in exception for bonds financing public school 
     capital expenditures) is amended by striking ``$5,000,000'' 
     the second place it appears and inserting ``$10,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to obligations issued after December 31, 2000.

     SEC. 502. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE 
                   TO PUBLIC SCHOOL CONSTRUCTION BONDS.

       (a) In General.--Subparagraph (C) of section 148(f )(4) is 
     amended by adding at the end the following new clause:
       ``(xviii) 4-year spending requirement for public school 
     construction issue.--

       ``(I) In general.--In the case of a public school 
     construction issue, the spending requirements of clause (ii) 
     shall be treated as met if at least 10 percent of the 
     available construction proceeds of the construction issue are 
     spent for the governmental purposes of the issue within the 
     1-year period beginning on the date the bonds are issued, 30 
     percent of such proceeds are spent for such purposes within 
     the 2-year period beginning on such date, 60 percent of such 
     proceeds are spent for such purposes within the 3-year period 
     beginning on such date, and 100 percent of such proceeds are 
     spent for such purposes within the 4-year period beginning on 
     such date.
       ``(II) Public school construction issue.--For purposes of 
     this clause, the term `public school construction issue' 
     means any construction issue if no bond which is part of such 
     issue is a private activity bond and all of the available 
     construction proceeds of such issue are to be used for the 
     construction (as defined in clause (iv)) of public school 
     facilities to provide education or training below the 
     postsecondary level or for the acquisition of land that is 
     functionally related and subordinate to such facilities.
       ``(III) Other rules to apply.--Rules similar to the rules 
     of the preceding provisions of this subparagraph which apply 
     to clause (ii) also apply to this clause.''.

       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after December 31, 2000.

     SEC. 503. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN 
                   FUNDS.

       (a) In General.--Paragraph (1) of section 648 of the Tax 
     Reform Act of 1984 is amended to read as follows:
       ``(1) such securities or obligations are held in a fund--
       ``(A) which, except to the extent of the investment 
     earnings on such securities or obligations, cannot be used, 
     under State constitutional or statutory restrictions 
     continuously in effect since October 9, 1969, through the 
     date of issue of the bond issue, to pay debt service on the 
     bond issue or to finance the facilities that are to be 
     financed with the proceeds of the bonds, or
       ``(B) the annual distributions from which cannot exceed 7 
     percent of the average fair market value of the assets held 
     in such fund except to the extent distributions are necessary 
     to pay debt service on the bond issue,''.
       (b) Conforming Amendment.--Paragraph (3) of such section is 
     amended by striking ``the investment earnings of'' and 
     inserting ``distributions from''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 2001.

     SEC. 504. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY 
                   BONDS AS EXEMPT FACILITY BONDS.

       (a) Treatment as Exempt Facility Bond.--Subsection (a) of 
     section 142 (relating to exempt facility bond) is amended by 
     striking ``or'' at the end of paragraph (11), by striking the 
     period at the end of paragraph (12) and inserting ``, or'', 
     and by adding at the end the following:
       ``(13) qualified public educational facilities.''
       (b) Qualified Public Educational Facilities.--Section 142 
     (relating to exempt facility bond) is amended by adding at 
     the end the following new subsection:

[[Page H10935]]

       ``(k) Qualified Public Educational Facilities.--
       ``(1) In general.--For purposes of subsection (a)(13), the 
     term `qualified public educational facility' means any school 
     facility which is--
       ``(A) part of a public elementary school or a public 
     secondary school, and
       ``(B) owned by a private, for-profit corporation pursuant 
     to a public-private partnership agreement with a State or 
     local educational agency described in paragraph (2).
       ``(2) Public-private partnership agreement described.--A 
     public-private partnership agreement is described in this 
     paragraph if it is an agreement--
       ``(A) under which the corporation agrees--
       ``(i) to do 1 or more of the following: construct, 
     rehabilitate, refurbish, or equip a school facility, and
       ``(ii) at the end of the term of the agreement, to transfer 
     the school facility to such agency for no additional 
     consideration, and
       ``(B) the term of which does not exceed the term of the 
     issue to be used to provide the school facility.
       ``(3) School facility.--For purposes of this subsection, 
     the term `school facility' means--
       ``(A) school buildings,
       ``(B) functionally related and subordinate facilities and 
     land with respect to such buildings, including any stadium or 
     other facility primarily used for school events, and
       ``(C) any property, to which section 168 applies (or would 
     apply but for section 179), for use in the facility.
       ``(4) Public schools.--For purposes of this subsection, the 
     terms `elementary school' and `secondary school' have the 
     meanings given such terms by section 14101 of the Elementary 
     and Secondary Education Act of 1965 (20 U.S.C. 8801), as in 
     effect on the date of the enactment of this subsection.
       ``(5) Annual aggregate face amount of tax-exempt 
     financing.--
       ``(A) In general.--An issue shall not be treated as an 
     issue described in subsection (a)(13) if the aggregate face 
     amount of bonds issued by the State pursuant thereto (when 
     added to the aggregate face amount of bonds previously so 
     issued during the calendar year) exceeds an amount equal to 
     the greater of--
       ``(i) $10 multiplied by the State population, or
       ``(ii) $5,000,000.
       ``(B) Allocation rules.--
       ``(i) In general.--Except as otherwise provided in this 
     subparagraph, the State may allocate in a calendar year the 
     amount described in subparagraph (A) for such year in such 
     manner as the State determines appropriate.
       ``(ii) Rules for carryforward of unused amount.--With 
     respect to any calendar year, a State may make an election 
     under rules similar to the rules of section 146(f), except 
     that the sole carryforward purpose with respect to such 
     election is the issuance of exempt facility bonds described 
     in section 142(a)(13).''
       (c) Exemption From General State Volume Caps.--Paragraph 
     (3) of section 146(g) (relating to exception for certain 
     bonds) is amended--
       (1) by striking ``or (12)'' and inserting ``(12), or 
     (13)'', and
       (2) by striking ``and environmental enhancements of 
     hydroelectric generating facilities'' and inserting 
     ``environmental enhancements of hydroelectric generating 
     facilities, and qualified public educational facilities''.
       (d) Exemption From Limitation on Use for Land 
     Acquisition.--Section 147(h) (relating to certain rules not 
     to apply to mortgage revenue bonds, qualified student loan 
     bonds, and qualified 501(c)(3) bonds) is amended by adding at 
     the end the following new paragraph:
       ``(3) Exempt facility bonds for qualified public-private 
     schools.--Subsection (c) shall not apply to any exempt 
     facility bond issued as part of an issue described in section 
     142(a)(13) (relating to qualified public-private schools).''
       (e) Conforming Amendment.--The heading of section 147(h) is 
     amended by striking ``Mortgage Revenue Bonds, Qualified 
     Student Loan Bonds, and Qualified 501(c)(3) Bonds'' in the 
     heading and inserting ``Certain Bonds''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 2000.

     SEC. 505. EXPANSION OF QUALIFIED ZONE ACADEMY BOND PROGRAM.

       (a) In General.--So much of part IV of subchapter U of 
     chapter 1 (relating to incentives for education zones) as 
     precedes subsection (d) of section 1397E is amended to read 
     as follows:

                  ``PART IV--EDUCATION BOND PROVISIONS

``Sec. 1397E. Credit to holders of qualified zone academy bonds.
``Sec. 1397F. Qualified zone academy bond defined.
``Sec. 1397G. Authorization of additional qualified zone academy bonds 
              without targeting and private partnership requirements.

     ``SEC. 1397E. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY 
                   BONDS.

       ``(a) Allowance of Credit.--In the case of an eligible 
     taxpayer who holds a qualified zone academy bond on a credit 
     allowance date of such bond which occurs during the taxable 
     year, there shall be allowed as a credit against the tax 
     imposed by this chapter for such taxable year an amount equal 
     to the sum of the credits determined under subsection (b) 
     with respect to credit allowance dates during such year on 
     which the taxpayer holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a qualified zone academy bond is 25 percent of the 
     annual credit determined with respect to such bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any qualified zone academy bond is the product 
     of--
       ``(A) the applicable credit rate, multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Applicable credit rate.--For purposes of paragraph 
     (1), the applicable credit rate with respect to an issue is 
     the rate equal to an average market yield (as of the day 
     before the day that the issue is sold) on outstanding long-
     term corporate debt obligations (determined under regulations 
     prescribed by the Secretary).
       ``(4) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed.
       ``(c) Limitation Based on Amount of Tax.--
       ``(1) In general.--The credit allowed under subsection (a) 
     for any taxable year shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under part IV of 
     subchapter A (other than subpart C thereof, relating to 
     refundable credits).
       ``(2) Carryover of unused credit.--If the credit allowable 
     under subsection (a) exceeds the limitation imposed by 
     paragraph (1) for such taxable year, such excess shall be 
     carried to the succeeding taxable year and added to the 
     credit allowable under subsection (a) for such taxable year.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified zone academy bond.--The term `qualified 
     zone academy bond' has the meaning given to such term by 
     section 1397F; except that such term shall also include any 
     bond treated as a qualified zone academy bond under section 
     1397G. Such term shall not include any bond which is part of 
     an issue unless such issue meets the requirements of 
     subsection (g).
       ``(2) Credit allowance date.--The term `credit allowance 
     date' means--
       ``(A) March 15,
       ``(B) June 15,
       ``(C) September 15, and
       ``(D) December 15.
     Such term includes the last day on which the bond is 
     outstanding.
       ``(3) Eligible taxpayer.--The term `eligible taxpayer' 
     means--
       ``(A) a bank (within the meaning of section 581),
       ``(B) an insurance company to which subchapter L applies,
       ``(C) a corporation actively engaged in the business of 
     lending money, and
       ``(D) any other C corporation.
       ``(e) Other Definitions.--For purposes of this subchapter--
       ``(1) Local educational agency.--The term `local 
     educational agency' has the meaning given to such term by 
     section 14101 of the Elementary and Secondary Education Act 
     of 1965. Such term includes the local educational agency that 
     serves the District of Columbia, but does not include any 
     other State agency.
       ``(2) Bond.--The term `bond' includes any obligation.
       ``(3) State.--The term `State' includes the District of 
     Columbia and any possession of the United States.
       ``(4) Public school facility.--The term `public school 
     facility' shall not include--
       ``(A) any stadium or other facility primarily used for 
     athletic contests or exhibitions or other events for which 
     admission is charged to the general public, or
       ``(B) any facility which is not owned by a State or local 
     government or any agency or instrumentality of a State or 
     local government.
       ``(5) Permitted purpose.--The term `permitted purpose' 
     means--
       ``(A) in the case of a bond which is a qualified zone 
     academy bond without regard to section 1397G, any qualified 
     purpose (as defined in section 1397F(a)(4)), and
       ``(B) in the case of a bond which is a qualified zone 
     academy bond solely by reason of section 1397G, the purpose 
     described in section 1397G(a)(2).
       ``(f) Special Rules.--
       ``(1) Only certain refinancings permitted.--A refinancing 
     of indebtedness (other than a qualified zone academy bond) 
     shall be treated as a qualified zone academy bond only if 
     such indebtedness was originally incurred by the issuer--
       ``(A) after the date of the enactment of this section,
       ``(B) for a term of not more than 1 year,
       ``(C) to finance an expenditure which is a permitted 
     purpose to be financed by a qualified zone academy bond, and
       ``(D) in anticipation of being refinanced with proceeds of 
     a qualified zone academy bond.
       ``(2) Sinking funds.--Rules similar to the rules under 
     section 148 on replacement proceeds shall apply for purposes 
     of this section. Such replacement proceeds shall be invested 
     in noninterest-bearing State and Local Government Series 
     obligations issued by the Secretary.
       ``(g) Special Rules Relating to Arbitrage.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, an issue shall be treated as meeting the 
     requirements of this subsection if the issue meets the 
     spending requirements of subclause (I) of section 
     148(f)(4)(C)(xviii).
       ``(2) Rules regarding compliance during 4-year period.--If 
     an issue fails to meet such spending requirements during the 
     4-year period beginning on the date of issuance, the issuer 
     shall pay to the United States amounts which would be 
     required to be paid to the United

[[Page H10936]]

     States under section 148(f)(2) were such issue required to 
     meet the requirements of such section. Rules similar to the 
     rules of clause (iii) of section 148(f)(4)(C) shall apply for 
     purposes of the preceding sentence.
       ``(3) Rules regarding continuing compliance after 4-year 
     determination.--If at least 95 percent of the proceeds of the 
     issue is not expended for 1 or more permitted purposes within 
     the 4-year period beginning on the date of issuance, an issue 
     shall be treated as continuing to meet the requirements of 
     this subsection if the issuer uses all unspent proceeds of 
     the issue to redeem bonds of the issue within 90 days after 
     the end of such 4-year period.
       ``(4) Small issuer exception.--Paragraph (1) shall not 
     apply to an issue issued by a governmental unit with general 
     taxing powers if the requirements of paragraphs (2) and (3) 
     of section 148(f) would be treated as met by reason of 
     subparagraph (D) of section 148(f)(4) if such issue were 
     treated as a tax-exempt bond and taken into account under 
     such subparagraph, and such issue shall be so treated for 
     purposes of determining whether such requirements are met 
     with respect to tax-exempt bonds.
       ``(h) Recapture of Portion of Credit Where Cessation of 
     Compliance.--
       ``(1) In general.--If any bond which when issued purported 
     to be a qualified zone academy bond ceases to be a qualified 
     zone academy bond, the issuer shall pay to the United States 
     (at the time required by the Secretary) an amount equal to 
     the sum of--
       ``(A) the aggregate of the credits allowable under this 
     section with respect to such bond (determined without regard 
     to subsection (c)) for taxable years ending during the 
     calendar year in which such cessation occurs and the 2 
     preceding calendar years, and
       ``(B) interest at the underpayment rate under section 6621 
     on the amount determined under subparagraph (A) for each 
     calendar year for the period beginning on the first day of 
     such calendar year.
       ``(2) Failure to pay.--If the issuer fails to timely pay 
     the amount required by paragraph (1) with respect to such 
     bond, the tax imposed by this chapter on each holder of any 
     such bond which is part of such issue shall be increased (for 
     the taxable year of the holder in which such cessation 
     occurs) by the aggregate decrease in the credits allowed 
     under this section to such holder for taxable years beginning 
     in such 3 calendar years which would have resulted solely 
     from denying any credit under this section with respect to 
     such issue for such taxable years.
       ``(3) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (2) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     paragraph (2) shall not be treated as a tax imposed by this 
     chapter for purposes of determining --
       ``(i) the amount of any credit allowable under this part, 
     or
       ``(ii) the amount of the tax imposed by section 55.
       ``(i) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section (determined without regard to subsection 
     (c)) and the amount so included shall be treated as interest 
     income.
       ``(j) Treatment for Estimated Tax Purposes.--Solely for 
     purposes of sections 6654 and 6655, the credit allowed by 
     this section to a taxpayer by reason of holding a qualified 
     zone academy bond on a credit allowance date shall be treated 
     as if it were a payment of estimated tax made by the taxpayer 
     on such date.
       ``(k) Reporting.--Issuers of qualified zone academy bonds 
     shall submit reports similar to the reports required under 
     section 149(e).
       ``(l) Termination.--This section shall not apply to any 
     bond issued after December 31, 2005.

     ``SEC. 1397F. QUALIFIED ZONE ACADEMY BONDS.''

       (b) Extension of Qualified Zone Academy Bond Provisions.--
       (1) Subsections (d) and (e) of section 1397E (as in effect 
     on the day before the date of the enactment of this Act) are 
     hereby moved and inserted after the section heading for 
     section 1397F (as added by subsection (a)) and redesignated 
     as subsections (a) and (b).
       (2) Subsection (b) of section 1397F (as so redesignated) is 
     amended to read as follows:
       ``(b) Limitations on Amount of Bonds Designated.--
       ``(1) In general.--There is a national zone academy bond 
     limitation for each calendar year. Such limitation is--
       ``(A) $400,000,000 for 1998,
       ``(B) $400,000,000 for 1999,
       ``(C) $400,000,000 for 2000,
       ``(D) $400,000,000 for 2001,
       ``(E) $400,000,000 for 2002,
       ``(F) $400,000,000 for 2003, and
       ``(G) except as provided in paragraph (3), zero after 2003.
       ``(2) Allocation of limitation.--
       ``(A) In general.--The national zone academy bond 
     limitation for a calendar year shall be allocated by the 
     Secretary among the States on the basis of their respective 
     populations of individuals below the poverty line (as defined 
     by the Office of Management and Budget). The limitation 
     amount allocated to a State under the preceding sentence 
     shall be allocated by the State to qualified zone academies 
     within such State.
       ``(B) Designation subject to limitation amount.--The 
     maximum aggregate face amount of bonds issued during any 
     calendar year which may be designated under subsection (a) 
     with respect to any qualified zone academy shall not exceed 
     the limitation amount allocated to such academy under 
     subparagraph (A) for such calendar year.
       ``(3) Carryover of unused limitation.--If for any calendar 
     year--
       ``(A) the limitation amount under this subsection for any 
     State, exceeds
       ``(B) the amount of bonds issued during such year which are 
     designated under subsection (a) (or the corresponding 
     provisions of prior law) with respect to qualified zone 
     academies within such State,

     the limitation amount under this subsection for such State 
     for the following calendar year shall be increased by the 
     amount of such excess. Any carryforward of a limitation 
     amount may be carried only to the first 2 years (3 years for 
     carryforwards from 1998 or 1999) following the unused 
     limitation year. For purposes of the preceding sentence, a 
     limitation amount shall be treated as used on a first-in 
     first-out basis.''
       (3) Subsection (a) of section 1397F (as so redesignated) is 
     amended--
       (A) by striking ``For purposes of this section--'' in the 
     material preceding paragraph (1) and inserting ``For purposes 
     of this part--'',
       (B) by striking ``an eligible local'' in paragraphs (1)(A) 
     and (3)(A) (as redesignated by this paragraph) and inserting 
     ``a local'',
       (C) by striking ``the maximum term permitted under 
     paragraph (3)'' in paragraph (1)(D) and inserting ``15 
     years'', and
       (D) by striking paragraphs (3) and (6) and by redesignating 
     paragraphs (4) and (5) as paragraphs (3) and (4), 
     respectively.
       (4) Paragraph (3) of section 1397F(a) (as so redesignated) 
     is amended--
       (A) by striking ``(4)'' and all that follows through ``The 
     term'' and inserting the following:
       ``(4) Qualified zone academy.--The term'',
       (B) by striking subparagraph (B),
       (C) by redesignating clauses (i) through (iv) as 
     subparagraphs (A) through (D), respectively, and
       (D) by redesignating subclauses (I) and (II) of 
     subparagraph (D) (as so redesignated) as clauses (i) and 
     (ii), respectively.
       (c) Authorization of Additional Qualified Zone Academy 
     Bonds Without Targeting and Private Partnership 
     Requirements.--Part IV of subchapter U of chapter 1 is 
     amended by adding at the end the following new section:

     ``SEC. 1397G. AUTHORIZATION OF ADDITIONAL QUALIFIED ZONE 
                   ACADEMY BONDS WITHOUT TARGETING AND PRIVATE 
                   PARTNERSHIP REQUIREMENTS.

       ``(a) In General.--For purposes of this part, the term 
     `qualified zone academy bond' also includes any bond issued 
     by a State or local government as part of an issue if--
       ``(1) the issuer designates such bond for purpose of this 
     section, and
       ``(2) the requirements of subparagraphs (A), (B), and (D) 
     of paragraph (1) of section 1397F(a) are met with respect to 
     such issue, determined--
       ``(A) by treating any public school facility as being a 
     qualified zone academy ,and
       ``(B) by applying paragraph (4) thereof as if the only 
     qualified purpose were constructing, rehabilitating, or 
     repairing a public school facility or acquiring the land 
     which is functionally related and subordinate to the public 
     school facility which is to be constructed with part of the 
     proceeds of such issue.
       ``(b) Limitation on Amount of Bonds Designated.--The 
     maximum aggregate face amount of bonds issued during any 
     calendar year which may be designated under subsection (a) by 
     any issuer shall not exceed the limitation amount allocated 
     under subsection (d) for such calendar year to such issuer.
       ``(c) National Limitation on Amount of Bonds Designated.--
     There is a national additional qualified zone academy bond 
     limitation for each calendar year. Such limitation is--
       ``(1) $5,000,000,000 for 2001,
       ``(2) $5,000,000,000 for 2002, and
       ``(3) $5,000,000,000 for 2003,
       ``(4) except as provided in subsection (e), zero after 
     2003.
       ``(d) Limitation Allocated Among States.--
       ``(1) In general.--
       ``(A) Allocation on the basis of population.--50 percent of 
     the limitation applicable under subsection (c) for any 
     calendar year shall be allocated before such calendar year by 
     the Secretary among the States on the basis of their 
     respective populations.
       ``(B) Allocation on the basis of poverty.--50 percent of 
     the limitation applicable under subsection (c) for any 
     calendar year shall be allocated before such calendar year by 
     the Secretary among the States on the basis of their 
     respective populations of individuals below the poverty line 
     (as defined by the Office of Management and Budget).
       ``(C) Minimum allocations to small states.--The Secretary 
     shall adjust the allocations under this subsection for any 
     calendar year for each State to the extent necessary to 
     ensure that the amount allocated to such State under this 
     subsection for such year is not less than $25,000,000.
       ``(D) Use of census data.--Determinations under this 
     subsection shall be made on the basis of the most recently 
     available census data.
       ``(2) Allocation within the state.--
       ``(A) In general.--Except as otherwise provided in 
     subparagraph (B), the limitation allocated to any State may 
     be allocated among governmental units in such State having 
     authority to issue such bonds as provided by State law (or, 
     in absence of State law, by the Governor of such State).
       ``(B) Minimum allocations to large local educational 
     agencies.--In no event may the limitation for any calendar 
     year allocated to any large local educational agency in a 
     State be less than the sum of--

[[Page H10937]]

       ``(i) an amount which bears the same ratio to 50 percent of 
     such limitation as the population within the area under the 
     jurisdiction of such agency bears to the population of the 
     entire State, and
       ``(ii) an amount which bears the same ratio to 50 percent 
     of such limitation as the population within the area under 
     the jurisdiction of such agency below the poverty line (as 
     defined by the Office of Management and Budget) bears to such 
     population of the entire State.
       ``(3) Allocations for indian schools.--In addition to the 
     amounts otherwise allocated under this subsection, 
     $200,000,000 (in the aggregate for calendar years 2001, 2002, 
     and 2003) shall be allocated by the Secretary (after 
     consultation with the Secretary of the Interior) for purposes 
     of the construction, rehabilitation, and repair of schools 
     operated by or on behalf of an Indian tribal government 
     (within the meaning of section 7871). In the case of amounts 
     allocated under the preceding sentence, Indian tribal 
     governments (as so defined) shall be treated as qualified 
     issuers for purposes of this part.
       ``(4) Required state allocation plans.--
       ``(A) In general.--Notwithstanding any other provision of 
     this section, the limitation for any State shall be zero 
     unless the limitation is allocated within such State pursuant 
     to a qualified allocation plan.
       ``(B) Qualified allocation plan.--For purposes of 
     subparagraph (A), the term `qualified allocation plan' means 
     any plan which--
       ``(i) identifies the State's needs for public school 
     facilities (including descriptions of the capacity of public 
     schools in the State to house projected enrollments), 
     particular financing difficulties being encountered by local 
     school districts in the State, and health and safety problems 
     at existing facilities, and
       ``(ii) describes how the State will allocate to local 
     educational agencies, or otherwise use, its allocation under 
     this section to address the needs identified under clause 
     (i), including a description of how it will--

       ``(I) ensure that the needs of rural, urban, and suburban 
     areas will be recognized,
       ``(II) ensure that the needs of localities with the 
     greatest needs, as demonstrated by inadequate school 
     facilities coupled with low level of resources, will be met, 
     and
       ``(III) give priority to the role of charter schools in 
     achieving State educational objectives.

       ``(C) Application of paragraph.--This paragraph shall apply 
     to allocations after more than 6 months after the date of the 
     enactment of this paragraph.
       ``(5) Large local educational agency.--For purposes of this 
     section, the term `large local educational agency' means, 
     with respect to a calendar year, any local educational agency 
     with at least 40,000 children who have attained age 5 but not 
     age 18 for the most recent fiscal year ending before such 
     calendar year.
       ``(e) Carryover of Unused Limitation.--
       ``(1) In general.--If for any calendar year--
       ``(A) the amount allocated under subsection (d) to any 
     State, exceeds
       ``(B) the amount of bonds issued during such year which are 
     designated under subsection (a) pursuant to such allocation,
     the limitation amount under such subsection for such State 
     for the following calendar year shall be increased by the 
     amount of such excess.
       ``(2) 2-year carryforward.--Any carryforward of a 
     limitation amount may be carried only to the first 2 years 
     following the unused limitation year. For purposes of the 
     preceding sentence, a limitation amount shall be treated as 
     used on a first-in first-out basis.
       ``(3) Allocations for indian schools.--Rules similar to 
     paragraphs (1) and (2) shall apply to the amounts allocated 
     under subsection (d)(3); except that 2003 shall be treated as 
     the unused limitation year.''
       (d) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest) is amended by adding 
     at the end the following new paragraph:
       ``(8) Reporting of credit on qualified zone academy 
     bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 1397E(i) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 
     1397E(d)(2)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A) of this paragraph, subsection 
     (b)(4) of this section shall be applied without regard to 
     subparagraphs (A), (H), (I), (J), (K), and (L)(i).
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''
       (e) Conforming Amendments.--
       (1) Subsections (f), (g), and (h) of section 1397E (as in 
     effect on the day before the date of the enactment of this 
     Act) are hereby repealed.
       (2) Subchapter U of chapter 1 of such Code is amended by 
     redesignating section 1397F (as in effect on the day before 
     the date of the enactment of this Act) as section 1397H.
       (3) The table of parts of subchapter U of chapter 1 of such 
     Code is amended by striking the item relating to part IV and 
     inserting the following item:

``Part IV. Education bond provisions.''
       (f) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to obligations issued after December 31, 2000.
       (2) Modification of restriction on zone academy bond 
     holders.--In the case of bonds to which section 1397E of the 
     Internal Revenue Code of 1986 (as in effect before the date 
     of the enactment of this Act) applies, the limitation of such 
     section to corporations actively engaged in the business of 
     lending money shall not apply after the date of the enactment 
     of this Act.
                   TITLE VI--COMMUNITY REVITALIZATION
           Subtitle A--Tax Incentives for Renewal Communities

     SEC. 601. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL 
                   COMMUNITIES.

       (a) In General.--Chapter 1 is amended by adding at the end 
     the following new subchapter:

                  ``Subchapter X--Renewal Communities

``Part   I. Designation.
``Part  II. Renewal community capital gain; renewal community business.
``Part  III. Additional incentives.

                         ``PART I--DESIGNATION

``Sec. 1400E. Designation of renewal communities.

     ``SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

       ``(a) Designation.--
       ``(1) Definitions.--For purposes of this title, the term 
     `renewal community' means any area--
       ``(A) which is nominated by 1 or more local governments and 
     the State or States in which it is located for designation as 
     a renewal community (hereafter in this section referred to as 
     a `nominated area'), and
       ``(B) which the Secretary of Housing and Urban Development 
     designates as a renewal community, after consultation with--
       ``(i) the Secretaries of Agriculture, Commerce, Labor, and 
     the Treasury; the Director of the Office of Management and 
     Budget, and the Administrator of the Small Business 
     Administration, and
       ``(ii) in the case of an area on an Indian reservation, the 
     Secretary of the Interior.
       ``(2) Number of designations.--
       ``(A) In general.--Not more than 40 nominated areas may be 
     designated as renewal communities.
       ``(B) Minimum designation in rural areas.--Of the areas 
     designated under paragraph (1), at least 12 must be areas--
       ``(i) which are within a local government jurisdiction or 
     jurisdictions with a population of less than 50,000,
       ``(ii) which are outside of a metropolitan statistical area 
     (within the meaning of section 143(k)(2)(B)), or
       ``(iii) which are determined by the Secretary of Housing 
     and Urban Development, after consultation with the Secretary 
     of Commerce, to be rural areas.

     One of such 12 areas shall be an area within Mississippi, to 
     be designated by the State of Mississippi, that includes at 
     least 1 census tract within Madison County, Mississippi.
       ``(3) Areas designated based on degree of poverty, etc.--
       ``(A) In general.--Except as otherwise provided in this 
     section, the nominated areas designated as renewal 
     communities under this subsection shall be those nominated 
     areas with the highest average ranking with respect to the 
     criteria described in subparagraphs (B), (C), and (D) of 
     subsection (c)(3). For purposes of the preceding sentence, an 
     area shall be ranked within each such criterion on the basis 
     of the amount by which the area exceeds such criterion, with 
     the area which exceeds such criterion by the greatest amount 
     given the highest ranking.
       ``(B) Exception where inadequate course of action, etc.--An 
     area shall not be designated under subparagraph (A) if the 
     Secretary of Housing and Urban Development determines that 
     the course of action described in subsection (d)(2) with 
     respect to such area is inadequate.
       ``(C) Preference for enterprise communities and empowerment 
     zones.--With respect to the first 20 designations made under 
     this section, a preference shall be provided to those 
     nominated areas which are enterprise communities or 
     empowerment zones (and are otherwise eligible for designation 
     under this section).
       ``(4) Limitation on designations.--
       ``(A) Publication of regulations.--The Secretary of Housing 
     and Urban Development shall prescribe by regulation no later 
     than 4 months after the date of the enactment of this 
     section, after consultation with the officials described 
     in paragraph (1)(B)--
       ``(i) the procedures for nominating an area under paragraph 
     (1)(A),
       ``(ii) the parameters relating to the size and population 
     characteristics of a renewal community, and
       ``(iii) the manner in which nominated areas will be 
     evaluated based on the criteria specified in subsection (d).
       ``(B) Time limitations.--The Secretary of Housing and Urban 
     Development may designate nominated areas as renewal 
     communities only during the period beginning on the first day 
     of the first month following the month in which the 
     regulations described in subparagraph (A) are prescribed and 
     ending on December 31, 2001.
       ``(C) Procedural rules.--The Secretary of Housing and Urban 
     Development shall not make any designation of a nominated 
     area as a renewal community under paragraph (2) unless--
       ``(i) the local governments and the States in which the 
     nominated area is located have the authority--

       ``(I) to nominate such area for designation as a renewal 
     community,
       ``(II) to make the State and local commitments described in 
     subsection (d), and
       ``(III) to provide assurances satisfactory to the Secretary 
     of Housing and Urban Development that such commitments will 
     be fulfilled,

       ``(ii) a nomination regarding such area is submitted in 
     such a manner and in such form, and contains such 
     information, as the Secretary of Housing and Urban 
     Development shall by regulation prescribe, and
       ``(iii) the Secretary of Housing and Urban Development 
     determines that any information furnished is reasonably 
     accurate.

[[Page H10938]]

       ``(5) Nomination process for indian reservations.--For 
     purposes of this subchapter, in the case of a nominated area 
     on an Indian reservation, the reservation governing body (as 
     determined by the Secretary of the Interior) shall be treated 
     as being both the State and local governments with respect to 
     such area.
       ``(b) Period for Which Designation Is in Effect.--
       ``(1) In general.--Any designation of an area as a renewal 
     community shall remain in effect during the period beginning 
     on January 1, 2002, and ending on the earliest of--
       ``(A) December 31, 2009,
       ``(B) the termination date designated by the State and 
     local governments in their nomination, or
       ``(C) the date the Secretary of Housing and Urban 
     Development revokes such designation.
       ``(2) Revocation of designation.--The Secretary of Housing 
     and Urban Development may revoke the designation under this 
     section of an area if such Secretary determines that the 
     local government or the State in which the area is located--
       ``(A) has modified the boundaries of the area, or
       ``(B) is not complying substantially with, or fails to make 
     progress in achieving, the State or local commitments, 
     respectively, described in subsection (d).
       ``(3) Earlier termination of certain benefits if earlier 
     termination of designation.--If the designation of an area as 
     a renewal community terminates before December 31, 2009, the 
     day after the date of such termination shall be substituted 
     for `January 1, 2010' each place it appears in sections 1400F 
     and 1400J with respect to such area.
       ``(c) Area and Eligibility Requirements.--
       ``(1) In general.--The Secretary of Housing and Urban 
     Development may designate a nominated area as a renewal 
     community under subsection (a) only if the area meets the 
     requirements of paragraphs (2) and (3) of this subsection.
       ``(2) Area requirements.--A nominated area meets the 
     requirements of this paragraph if--
       ``(A) the area is within the jurisdiction of one or more 
     local governments,
       ``(B) the boundary of the area is continuous, and
       ``(C) the area--
       ``(i) has a population of not more than 200,000 and at 
     least--

       ``(I) 4,000 if any portion of such area (other than a rural 
     area described in subsection (a)(2)(B)(i)) is located within 
     a metropolitan statistical area (within the meaning of 
     section 143(k)(2)(B)) which has a population of 50,000 or 
     greater, or
       ``(II) 1,000 in any other case, or

       ``(ii) is entirely within an Indian reservation (as 
     determined by the Secretary of the Interior).
       ``(3) Eligibility requirements.--A nominated area meets the 
     requirements of this paragraph if the State and the local 
     governments in which it is located certify in writing (and 
     the Secretary of Housing and Urban Development, after such 
     review of supporting data as he deems appropriate, accepts 
     such certification) that--
       ``(A) the area is one of pervasive poverty, unemployment, 
     and general distress;
       ``(B) the unemployment rate in the area, as determined by 
     the most recent available data, was at least 1\1/2\ times the 
     national unemployment rate for the period to which such data 
     relate;
       ``(C) the poverty rate for each population census tract 
     within the nominated area is at least 20 percent; and
       ``(D) in the case of an urban area, at least 70 percent of 
     the households living in the area have incomes below 80 
     percent of the median income of households within the 
     jurisdiction of the local government (determined in the same 
     manner as under section 119(b)(2) of the Housing and 
     Community Development Act of 1974).
       ``(4) Consideration of other factors.--The Secretary of 
     Housing and Urban Development, in selecting any nominated 
     area for designation as a renewal community under this 
     section--
       ``(A) shall take into account--
       ``(i) the extent to which such area has a high incidence of 
     crime, or
       ``(ii) if such area has census tracts identified in the May 
     12, 1998, report of the General Accounting Office regarding 
     the identification of economically distressed areas, and
       ``(B) with respect to 1 of the areas to be designated under 
     subsection (a)(2)(B), may, in lieu of any criteria described 
     in paragraph (3), take into account the existence of 
     outmigration from the area.
       ``(d) Required State and Local Commitments.--
       ``(1) In general.--The Secretary of Housing and Urban 
     Development may designate any nominated area as a renewal 
     community under subsection (a) only if--
       ``(A) the local government and the State in which the area 
     is located agree in writing that, during any period during 
     which the area is a renewal community, such governments will 
     follow a specified course of action which meets the 
     requirements of paragraph (2) and is designed to reduce the 
     various burdens borne by employers or employees in such area, 
     and
       ``(B) the economic growth promotion requirements of 
     paragraph (3) are met.
       ``(2) Course of action.--
       ``(A) In general.--A course of action meets the 
     requirements of this paragraph if such course of action is a 
     written document, signed by a State (or local government) and 
     neighborhood organizations, which evidences a partnership 
     between such State or government and community-based 
     organizations and which commits each signatory to specific 
     and measurable goals, actions, and timetables. Such course of 
     action shall include at least 4 of the following:
       ``(i) A reduction of tax rates or fees applying within the 
     renewal community.
       ``(ii) An increase in the level of efficiency of local 
     services within the renewal community.
       ``(iii) Crime reduction strategies, such as crime 
     prevention (including the provision of crime prevention 
     services by nongovernmental entities).
       ``(iv) Actions to reduce, remove, simplify, or streamline 
     governmental requirements applying within the renewal 
     community.
       ``(v) Involvement in the program by private entities, 
     organizations, neighborhood organizations, and community 
     groups, particularly those in the renewal community, 
     including a commitment from such private entities to provide 
     jobs and job training for, and technical, financial, or other 
     assistance to, employers, employees, and residents from the 
     renewal community.
       ``(vi) The gift (or sale at below fair market value) of 
     surplus real property (such as land, homes, and commercial or 
     industrial structures) in the renewal community to 
     neighborhood organizations, community development 
     corporations, or private companies.
       ``(B) Recognition of past efforts.--For purposes of this 
     section, in evaluating the course of action agreed to by any 
     State or local government, the Secretary of Housing and Urban 
     Development shall take into account the past efforts of such 
     State or local government in reducing the various burdens 
     borne by employers and employees in the area involved.
       ``(3) Economic growth promotion requirements.--The economic 
     growth promotion requirements of this paragraph are met with 
     respect to a nominated area if the local government and the 
     State in which such area is located certify in writing that 
     such government and State (respectively) have repealed or 
     reduced, will not enforce, or will reduce within the 
     nominated area at least 4 of the following:
       ``(A) Licensing requirements for occupations that do not 
     ordinarily require a professional degree.
       ``(B) Zoning restrictions on home-based businesses which do 
     not create a public nuisance.
       ``(C) Permit requirements for street vendors who do not 
     create a public nuisance.
       ``(D) Zoning or other restrictions that impede the 
     formation of schools or child care centers.
       ``(E) Franchises or other restrictions on competition for 
     businesses providing public services, including taxicabs, 
     jitneys, cable television, or trash hauling.

     This paragraph shall not apply to the extent that such 
     regulation of businesses and occupations is necessary for and 
     well-tailored to the protection of health and safety.
       ``(e) Coordination With Treatment of Empowerment Zones and 
     Enterprise Communities.--For purposes of this title, the 
     designation under section 1391 of any area as an empowerment 
     zone or enterprise community shall cease to be in effect as 
     of the date that the designation of any portion of such area 
     as a renewal community takes effect.
       ``(f ) Definitions and Special Rules.--For purposes of this 
     subchapter--
       ``(1) Governments.--If more than one government seeks to 
     nominate an area as a renewal community, any reference to, or 
     requirement of, this section shall apply to all such 
     governments.
       ``(2) Local government.--The term `local government' 
     means--
       ``(A) any county, city, town, township, parish, village, or 
     other general purpose political subdivision of a State, and
       ``(B) any combination of political subdivisions described 
     in subparagraph (A) recognized by the Secretary of Housing 
     and Urban Development.
       ``(3) Application of rules relating to census tracts.--The 
     rules of section 1392(b)(4) shall apply.
       ``(4) Census data.--Population and poverty rate shall be 
     determined by using 1990 census data.
       ``(g) Priority for District of Columbia Nominated Area.--
     For purposes of this subchapter--
       ``(1) In general.--One nominated area within the District 
     of Columbia shall be treated for purposes of subsection 
     (a)(3) as having the highest average with respect to the 
     criteria described in subparagraphs (B), (C), and (D) of 
     subsection (c)(3).
       ``(2) Date of designation.--Notwithstanding subsection 
     (b)(1), the designation of a nominated area within the 
     District of Columbia as a renewal community shall take effect 
     on January 1, 2003.
       ``(3) Nomination.--The District of Columbia shall be 
     treated as being both a State and local government with 
     respect to such area.

 ``PART II--RENEWAL COMMUNITY CAPITAL GAIN; RENEWAL COMMUNITY BUSINESS

``Sec. 1400F. Renewal community capital gain.
``Sec. 1400G. Renewal community business defined.

     ``SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

       ``(a) General Rule.--Gross income does not include any 
     qualified capital gain from the sale or exchange of a 
     qualified community asset held for more than 5 years.
       ``(b) Qualified Community Asset.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified community asset' 
     means--
       ``(A) any qualified community stock,
       ``(B) any qualified community partnership interest, and
       ``(C) any qualified community business property.
       ``(2) Qualified community stock.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `qualified community stock' means any stock in a 
     domestic corporation if--
       ``(i) such stock is acquired by the taxpayer after December 
     31, 2001, and before January 1, 2010, at its original issue 
     (directly or through an underwriter) from the corporation 
     solely in exchange for cash,

[[Page H10939]]

       ``(ii) as of the time such stock was issued, such 
     corporation was a renewal community business (or, in the case 
     of a new corporation, such corporation was being organized 
     for purposes of being a renewal community business), and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such stock, such corporation qualified as a 
     renewal community business.
       ``(B) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this paragraph.
       ``(3) Qualified community partnership interest.--The term 
     `qualified community partnership interest' means any capital 
     or profits interest in a domestic partnership if--
       ``(A) such interest is acquired by the taxpayer after 
     December 31, 2001, and before January 1, 2010, from the 
     partnership solely in exchange for cash,
       ``(B) as of the time such interest was acquired, such 
     partnership was a renewal community business (or, in the case 
     of a new partnership, such partnership was being organized 
     for purposes of being a renewal community business), and
       ``(C) during substantially all of the taxpayer's holding 
     period for such interest, such partnership qualified as a 
     renewal community business.
     A rule similar to the rule of paragraph (2)(B) shall apply 
     for purposes of this paragraph.
       ``(4) Qualified community business property.--
       ``(A) In general.--The term `qualified community business 
     property' means tangible property if--
       ``(i) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after December 31, 
     2001, and before January 1, 2010,
       ``(ii) the original use of such property in the renewal 
     community commences with the taxpayer, and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such property, substantially all of the use of 
     such property was in a renewal community business of the 
     taxpayer.
       ``(B) Special rule for substantial improvements.--The 
     requirements of clauses (i) and (ii) of subparagraph (A) 
     shall be treated as satisfied with respect to--
       ``(i) property which is substantially improved by the 
     taxpayer before January 1, 2010, and
       ``(ii) any land on which such property is located.
     The determination of whether a property is substantially 
     improved shall be made under clause (ii) of section 
     1400B(b)(4)(B), except that `December 31, 2001' shall be 
     substituted for `December 31, 1997' in such clause.
       ``(c) Qualified Capital Gain.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `qualified capital gain` means any gain 
     recognized on the sale or exchange of--
       ``(A) a capital asset, or
       ``(B) property used in the trade or business (as defined in 
     section 1231(b)).
       ``(2) Gain before 2002 or after 2014 not qualified.--The 
     term `qualified capital gain' shall not include any gain 
     attributable to periods before January 1, 2002, or after 
     December 31, 2014.
       ``(3) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (3), (4), and (5) of section 1400B(e) shall 
     apply for purposes of this subsection.
       ``(d) Certain Rules To Apply.--For purposes of this 
     section, rules similar to the rules of paragraphs (5), (6), 
     and (7) of subsection (b), and subsections (f ) and (g), of 
     section 1400B shall apply; except that for such purposes 
     section 1400B(g)(2) shall be applied by substituting `January 
     1, 2002' for `January 1, 1998' and `December 31, 2014' for 
     `December 31, 2007'.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out the purposes 
     of this section, including regulations to prevent the 
     avoidance of the purposes of this section.

     ``SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

       ``For purposes of this subchapter, the term `renewal 
     community business' means any entity or proprietorship which 
     would be a qualified business entity or qualified 
     proprietorship under section 1397C if references to renewal 
     communities were substituted for references to empowerment 
     zones in such section.

                   ``PART III--ADDITIONAL INCENTIVES

``Sec. 1400H. Renewal community employment credit.
``Sec. 1400I. Commercial revitalization deduction.
``Sec. 1400J. Increase in expensing under section 179.

     ``SEC. 1400H. RENEWAL COMMUNITY EMPLOYMENT CREDIT.

       ``(a) In General.--Subject to the modification in 
     subsection (b), a renewal community shall be treated as an 
     empowerment zone for purposes of section 1396 with respect to 
     wages paid or incurred after December 31, 2001.
       ``(b) Modification.--In applying section 1396 with respect 
     to renewal communities--
       ``(1) the applicable percentage shall be 15 percent, and
       ``(2) subsection (c) thereof shall be applied by 
     substituting `$10,000' for `$15,000' each place it appears.

     ``SEC. 1400I. COMMERCIAL REVITALIZATION DEDUCTION.

       ``(a) General Rule.--At the election of the taxpayer, 
     either--
       ``(1) one-half of any qualified revitalization expenditures 
     chargeable to capital account with respect to any qualified 
     revitalization building shall be allowable as a deduction for 
     the taxable year in which the building is placed in service, 
     or
       ``(2) a deduction for all such expenditures shall be 
     allowable ratably over the 120-month period beginning with 
     the month in which the building is placed in service.
       ``(b) Qualified Revitalization Buildings and 
     Expenditures.--For purposes of this section--
       ``(1) Qualified revitalization building.--The term 
     `qualified revitalization building' means any building (and 
     its structural components) if--
       ``(A) the building is placed in service by the taxpayer in 
     a renewal community and the original use of the building 
     begins with the taxpayer, or
       ``(B) in the case of such building not described in 
     subparagraph (A), such building--
       ``(i) is substantially rehabilitated (within the meaning of 
     section 47(c)(1)(C)) by the taxpayer, and
       ``(ii) is placed in service by the taxpayer after the 
     rehabilitation in a renewal community.
       ``(2) Qualified revitalization expenditure.--
       ``(A) In general.--The term `qualified revitalization 
     expenditure' means any amount properly chargeable to capital 
     account for property for which depreciation is allowable 
     under section 168 (without regard to this section) and which 
     is--
       ``(i) nonresidential real property (as defined in section 
     168(e)), or
       ``(ii) section 1250 property (as defined in section 
     1250(c)) which is functionally related and subordinate to 
     property described in clause (i).
       ``(B) Certain expenditures not included.--
       ``(i) Acquisition cost.--In the case of a building 
     described in paragraph (1)(B), the cost of acquiring the 
     building or interest therein shall be treated as a qualified 
     revitalization expenditure only to the extent that such cost 
     does not exceed 30 percent of the aggregate qualified 
     revitalization expenditures (determined without regard to 
     such cost) with respect to such building.
       ``(ii) Credits.--The term `qualified revitalization 
     expenditure' does not include any expenditure which the 
     taxpayer may take into account in computing any credit 
     allowable under this title unless the taxpayer elects to take 
     the expenditure into account only for purposes of this 
     section.
       ``(c) Dollar limitation.--The aggregate amount which may be 
     treated as qualified revitalization expenditures with respect 
     to any qualified revitalization building shall not exceed the 
     lesser of--
       ``(1) $10,000,000, or
       ``(2) the commercial revitalization expenditure amount 
     allocated to such building under this section by the 
     commercial revitalization agency for the State in which the 
     building is located.
       ``(d) Commercial Revitalization Expenditure Amount.--
       ``(1) In general.--The aggregate commercial revitalization 
     expenditure amount which a commercial revitalization agency 
     may allocate for any calendar year is the amount of the State 
     commercial revitalization expenditure ceiling determined 
     under this paragraph for such calendar year for such agency.
       ``(2) State commercial revitalization expenditure 
     ceiling.--The State commercial revitalization expenditure 
     ceiling applicable to any State--
       ``(A) for each calendar year after 2001 and before 2010 is 
     $12,000,000 for each renewal community in the State, and
       ``(B) for each calendar year thereafter is zero.
       ``(3) Commercial revitalization agency.--For purposes of 
     this section, the term `commercial revitalization agency' 
     means any agency authorized by a State to carry out this 
     section.
       ``(4) Time and manner of allocations.--Allocations under 
     this section shall be made at the same time and in the same 
     manner as under paragraphs (1) and (7) of section 42(h).
       ``(e) Responsibilities of Commercial Revitalization 
     Agencies.--
       ``(1) Plans for allocation.--Notwithstanding any other 
     provision of this section, the commercial revitalization 
     expenditure amount with respect to any building shall be zero 
     unless--
       ``(A) such amount was allocated pursuant to a qualified 
     allocation plan of the commercial revitalization agency which 
     is approved (in accordance with rules similar to the rules of 
     section 147(f )(2) (other than subparagraph (B)(ii) thereof)) 
     by the governmental unit of which such agency is a part; and
       ``(B) such agency notifies the chief executive officer (or 
     its equivalent) of the local jurisdiction within which the 
     building is located of such allocation and provides such 
     individual a reasonable opportunity to comment on the 
     allocation.
       ``(2) Qualified allocation plan.--For purposes of this 
     subsection, the term `qualified allocation plan' means any 
     plan--
       ``(A) which sets forth selection criteria to be used to 
     determine priorities of the commercial revitalization agency 
     which are appropriate to local conditions,
       ``(B) which considers--
       ``(i) the degree to which a project contributes to the 
     implementation of a strategic plan that is devised for a 
     renewal community through a citizen participation process,
       ``(ii) the amount of any increase in permanent, full-time 
     employment by reason of any project, and
       ``(iii) the active involvement of residents and nonprofit 
     groups within the renewal community, and
       ``(C) which provides a procedure that the agency (or its 
     agent) will follow in monitoring compliance with this 
     section.
       ``(f) Special Rules.--
       ``(1) Deduction in lieu of depreciation.--The deduction 
     provided by this section for qualified revitalization 
     expenditures shall--

[[Page H10940]]

       ``(A) with respect to the deduction determined under 
     subsection (a)(1), be in lieu of any depreciation deduction 
     otherwise allowable on account of one-half of such 
     expenditures, and
       ``(B) with respect to the deduction determined under 
     subsection (a)(2), be in lieu of any depreciation deduction 
     otherwise allowable on account of all of such expenditures.
       ``(2) Basis adjustment, etc.--For purposes of sections 1016 
     and 1250, the deduction under this section shall be treated 
     in the same manner as a depreciation deduction. For purposes 
     of section 1250(b)(5), the straight line method of adjustment 
     shall be determined without regard to this section.
       ``(3) Substantial rehabilitations treated as separate 
     buildings.--A substantial rehabilitation (within the meaning 
     of section 47(c)(1)(C)) of a building shall be treated as a 
     separate building for purposes of subsection (a).
       ``(4) Clarification of allowance of deduction under minimum 
     tax.--Notwithstanding section 56(a)(1), the deduction under 
     this section shall be allowed in determining alternative 
     minimum taxable income under section 55.
       ``(g) Termination.--This section shall not apply to any 
     building placed in service after December 31, 2009.

     ``SEC. 1400J. INCREASE IN EXPENSING UNDER SECTION 179.

       ``(a) In General.--For purposes of section 1397A--
       ``(1) a renewal community shall be treated as an 
     empowerment zone,
       ``(2) a renewal community business shall be treated as an 
     enterprise zone business, and
       ``(3) qualified renewal property shall be treated as 
     qualified zone property.
       ``(b) Qualified Renewal Property.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified renewal property' 
     means any property to which section 168 applies (or would 
     apply but for section 179) if--
       ``(A) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after December 31, 
     2001, and before January 1, 2010, and
       ``(B) such property would be qualified zone property (as 
     defined in section 1397D) if references to renewal 
     communities were substituted for references to empowerment 
     zones in section 1397D.
       ``(2) Certain rules to apply.--The rules of subsections 
     (a)(2) and (b) of section 1397D shall apply for purposes of 
     this section.''.
       (b) Exception for Commercial Revitalization Deduction From 
     Passive Loss Rules.--
       (1) Paragraph (3) of section 469(i) is amended by 
     redesignating subparagraphs (C), (D), and (E) as 
     subparagraphs (D), (E), and (F), respectively, and by 
     inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) Exception for commercial revitalization deduction.--
     Subparagraph (A) shall not apply to any portion of the 
     passive activity loss for any taxable year which is 
     attributable to the commercial revitalization deduction under 
     section 1400I.''.
       (2) Subparagraph (E) of section 469(i)(3), as redesignated 
     by subparagraph (A), is amended to read as follows:
       ``(E) Ordering rules to reflect exceptions and separate 
     phase-outs.--If subparagraph (B), (C), or (D) applies for a 
     taxable year, paragraph (1) shall be applied--
       ``(i) first to the portion of the passive activity loss to 
     which subparagraph (C) does not apply,
       ``(ii) second to the portion of the passive activity credit 
     to which subparagraph (B) or (D) does not apply,
       ``(iii) third to the portion of such credit to which 
     subparagraph (B) applies,
       ``(iv) fourth to the portion of such loss to which 
     subparagraph (C) applies, and
       ``(v) then to the portion of such credit to which 
     subparagraph (D) applies.''.
       (3)(A) Subparagraph (B) of section 469(i)(6) is amended by 
     striking ``or'' at the end of clause (i), by striking the 
     period at the end of clause (ii) and inserting ``, or'', and 
     by adding at the end the following new clause:
       ``(iii) any deduction under section 1400I (relating to 
     commercial revitalization deduction).''.
       (B) The heading for such subparagraph (B) is amended by 
     striking ``or rehabilitation credit'' and inserting ``, 
     rehabilitation credit, or commercial revitalization 
     deduction''.
       (c) Audit and Report.--Not later than January 31 of 2004, 
     2007, and 2010, the Comptroller General of the United States 
     shall, pursuant to an audit of the renewal community program 
     established under section 1400E of the Internal Revenue Code 
     of 1986 (as added by subsection (a)) and the empowerment zone 
     and enterprise community program under subchapter U of 
     chapter 1 of such Code, report to Congress on such program 
     and its effect on poverty, unemployment, and economic growth 
     within the designated renewal communities, empowerment zones, 
     and enterprise communities.
       (d) Clerical Amendment.--The table of subchapters for 
     chapter 1 is amended by adding at the end the following new 
     item:

                ``Subchapter X. Renewal Communities.''.

     SEC. 602. WORK OPPORTUNITY CREDIT FOR HIRING YOUTH RESIDING 
                   IN RENEWAL COMMUNITIES.

       (a) High-Risk Youth.--Subparagraphs (A)(ii) and (B) of 
     section 51(d)(5) are each amended by striking ``empowerment 
     zone or enterprise community'' and inserting ``empowerment 
     zone, enterprise community, or renewal community''.
       (b) Qualified Summer Youth Employee.--Clause (iv) of 
     section 51(d)(7)(A) is amended by striking ``empowerment zone 
     or enterprise community'' and inserting ``empowerment zone, 
     enterprise community, or renewal community''.
       (c) Headings.--Paragraphs (5)(B) and (7)(C) of section 
     51(d) are each amended by inserting ``or community'' in the 
     heading after ``zone''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 2001.
   Subtitle B--Extension and Expansion of Empowerment Zone Incentives

     SEC. 611. AUTHORITY TO DESIGNATE 9 ADDITIONAL EMPOWERMENT 
                   ZONES.

       Section 1391 is amended by adding at the end the following 
     new subsection:
       ``(h) Additional Designations Permitted.--
       ``(1) In general.--In addition to the areas designated 
     under subsections (a) and (g), the appropriate Secretaries 
     may designate in the aggregate an additional 9 nominated 
     areas as empowerment zones under this section, subject to the 
     availability of eligible nominated areas. Of that number, not 
     more than seven may be designated in urban areas and not more 
     than 2 may be designated in rural areas.
       ``(2) Period designations may be made and take effect.--A 
     designation may be made under this subsection after the date 
     of the enactment of this subsection and before January 1, 
     2002. Subject to subparagraphs (B) and (C) of subsection 
     (d)(1), such designations shall remain in effect during the 
     period beginning on January 1, 2002, and ending on December 
     31, 2009.
       ``(3) Modifications to eligibility criteria, etc.--The 
     rules of subsection (g)(3) shall apply to designations under 
     this subsection.''.

     SEC. 612. EXTENSION OF EMPOWERMENT ZONE TREATMENT THROUGH 
                   2009.

       Subparagraph (A) of section 1391(d)(1) (relating to period 
     for which designation is in effect) is amended to read as 
     follows:
       ``(A)(i) in the case of an empowerment zone, December 31, 
     2009, or
       ``(ii) in the case of an enterprise community, the close of 
     the 10th calendar year beginning on or after such date of 
     designation,''.

     SEC. 613. 20 PERCENT EMPLOYMENT CREDIT FOR ALL EMPOWERMENT 
                   ZONES

       (a) 20 Percent Credit.--Subsection (b) of section 1396 
     (relating to empowerment zone employment credit) is amended 
     to read as follows:
       ``(b) Applicable Percentage.--For purposes of this section, 
     the applicable percentage is 20 percent.''.
       (b) All Empowerment Zones Eligible for Credit.--Section 
     1396 is amended by striking subsection (e).
       (c) Conforming Amendment.--Subsection (d) of section 1400 
     is amended to read as follows:
       ``(d) Special Rule for Application of Employment Credit.--
     With respect to the DC Zone, section 1396(d)(1)(B) (relating 
     to empowerment zone employment credit) shall be applied by 
     substituting `the District of Columbia' for `such empowerment 
     zone'.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to wages paid or incurred after December 31, 
     2001.

     SEC. 614. INCREASED EXPENSING UNDER SECTION 179.

       (a) In General.--Subparagraph (A) of section 1397A(a)(1) is 
     amended by striking ``$20,000'' and inserting ``$35,000''.
       (b) Expensing for Property Used in Developable Sites.--
     Section 1397A is amended by striking subsection (c).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 615. HIGHER LIMITS ON TAX-EXEMPT EMPOWERMENT ZONE 
                   FACILITY BONDS.

       (a) In General.--Paragraph (3) of section 1394(f) (relating 
     to bonds for empowerment zones designated under section 
     1391(g)) is amended to read as follows:
       ``(3) Empowerment zone facility bond.--For purposes of this 
     subsection, the term `empowerment zone facility bond' means 
     any bond which would be described in subsection (a) if--
       ``(A) in the case of obligations issued before January 1, 
     2002, only empowerment zones designated under section 1391(g) 
     were taken into account under sections 1397C and 1397D, and
       ``(B) in the case of obligations issued after December 31, 
     2001, all empowerment zones (other than the District of 
     Columbia) were taken into account under sections 1397C and 
     1397D.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 2001.

     SEC. 616. NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT 
                   ZONE INVESTMENTS.

       (a) In General.--Part III of subchapter U of chapter 1 is 
     amended--
       (1) by redesignating subpart C as subpart D;
       (2) by redesignating sections 1397B and 1397C as sections 
     1397C and 1397D, respectively; and
       (3) by inserting after subpart B the following new subpart:

  ``Subpart C--Nonrecognition of Gain on Rollover of Empowerment Zone 
                              Investments

``Sec. 1397B. Nonrecognition of Gain on Rollover of Empowerment Zone 
              Investments.

     ``SEC. 1397B. NONRECOGNITION OF GAIN ON ROLLOVER OF 
                   EMPOWERMENT ZONE INVESTMENTS.

       ``(a) Nonrecognition of Gain.--In the case of any sale of a 
     qualified empowerment zone asset held by the taxpayer for 
     more than 1 year and with respect to which such taxpayer 
     elects the application of this section, gain from such sale 
     shall be recognized only to the extent that the amount 
     realized on such sale exceeds--
       ``(1) the cost of any qualified empowerment zone asset 
     (with respect to the same zone as the asset sold) purchased 
     by the taxpayer during the 60-day period beginning on the 
     date of such sale, reduced by
       ``(2) any portion of such cost previously taken into 
     account under this section.
       ``(b) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified empowerment zone asset.--
       ``(A) In general.--The term `qualified empowerment zone 
     asset' means any property

[[Page H10941]]

     which would be a qualified community asset (as defined in 
     section 1400F) if in section 1400F--
       ``(i) references to empowerment zones were substituted for 
     references to renewal communities,
       ``(ii) references to enterprise zone businesses (as defined 
     in section 1397C) were substituted for references to renewal 
     community businesses, and
       ``(iii) the date of the enactment of this paragraph were 
     substituted for `December 31, 2001' each place it appears.
       ``(B) Treatment of dc zone.--The District of Columbia 
     Enterprise Zone shall not be treated as an empowerment zone 
     for purposes of this section.
       ``(2) Certain gain not eligible for rollover.--This section 
     shall not apply to--
       ``(A) any gain which is treated as ordinary income for 
     purposes of this subtitle, and
       ``(B) any gain which is attributable to real property, or 
     an intangible asset, which is not an integral part of an 
     enterprise zone business.
       ``(3) Purchase.--A taxpayer shall be treated as having 
     purchased any property if, but for paragraph (4), the 
     unadjusted basis of such property in the hands of the 
     taxpayer would be its cost (within the meaning of section 
     1012).
       ``(4) Basis adjustments.--If gain from any sale is not 
     recognized by reason of subsection (a), such gain shall be 
     applied to reduce (in the order acquired) the basis for 
     determining gain or loss of any qualified empowerment zone 
     asset which is purchased by the taxpayer during the 60-day 
     period described in subsection (a). This paragraph shall 
     not apply for purposes of section 1202.
       ``(5) Holding period.--For purposes of determining whether 
     the nonrecognition of gain under subsection (a) applies to 
     any qualified empowerment zone asset which is sold--
       ``(A) the taxpayer's holding period for such asset and the 
     asset referred to in subsection (a)(1) shall be determined 
     without regard to section 1223, and
       ``(B) only the first year of the taxpayer's holding period 
     for the asset referred to in subsection (a)(1) shall be taken 
     into account for purposes of paragraphs (2)(A)(iii), (3)(C), 
     and (4)(A)(iii) of section 1400F(b).''.
       (b) Conforming Amendments.--
       (1) Paragraph (23) of section 1016(a) is amended--
       (A) by striking ``or 1045'' and inserting ``1045, or 
     1397B'', and
       (B) by striking ``or 1045(b)(4)'' and inserting 
     ``1045(b)(4), or 1397B(b)(4)''.
       (2) Paragraph (15) of section 1223 is amended to read as 
     follows:
       ``(15) Except for purposes of sections 1202(a)(2), 
     1202(c)(2)(A), 1400B(b), and 1400F(b), in determining the 
     period for which the taxpayer has held property the 
     acquisition of which resulted under section 1045 or 1397B in 
     the nonrecognition of any part of the gain realized on the 
     sale of other property, there shall be included the period 
     for which such other property has been held as of the date of 
     such sale.''.
       (3) Paragraph (2) of section 1394(b) is amended--
       (A) by striking ``section 1397C'' and inserting ``section 
     1397D'', and
       (B) by striking ``section 1397C(a)(2)'' and inserting 
     ``section 1397D(a)(2)''.
       (4) Paragraph (3) of section 1394(b) is amended--
       (A) by striking ``section 1397B'' each place it appears and 
     inserting ``section 1397C'', and
       (B) by striking ``section 1397B(d)'' and inserting 
     ``section 1397C(d)''.
       (5) Sections 1400(e) and 1400B(c) are each amended by 
     striking ``section 1397B'' each place it appears and 
     inserting ``section 1397C''.
       (6) The table of subparts for part III of subchapter U of 
     chapter 1 is amended by striking the last item and inserting 
     the following new items:

``Subpart C. Nonrecognition of gain on rollover of empowerment zone 
              investments.
``Subpart D. General provisions.''.
       (7) The table of sections for subpart D of such part III is 
     amended to read as follows:

``Sec. 1397C. Enterprise zone business defined.
``Sec. 1397D. Qualified zone property defined.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to qualified empowerment zone assets acquired 
     after the date of the enactment of this Act.

     SEC. 617. INCREASED EXCLUSION OF GAIN ON SALE OF EMPOWERMENT 
                   ZONE STOCK.

       (a) In General.--Subsection (a) of section 1202 is amended 
     to read as follows:
       ``(a) Exclusion.--
       ``(1) In general.--In the case of a taxpayer other than a 
     corporation, gross income shall not include 50 percent of any 
     gain from the sale or exchange of qualified small business 
     stock held for more than 5 years.
       ``(2) Empowerment zone businesses.--
       ``(A) In general.--In the case of qualified small business 
     stock acquired after the date of the enactment of this 
     paragraph in a corporation which is a qualified business 
     entity (as defined in section 1397C(b)) during substantially 
     all of the taxpayer's holding period for such stock, 
     paragraph (1) shall be applied by substituting `60 percent' 
     for `50 percent'.
       ``(B) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (5) and (7) of section 1400B(b) shall apply for 
     purposes of this paragraph.
       ``(C) Gain after 2014 not qualified.--Subparagraph (A) 
     shall not apply to gain attributable to periods after 
     December 31, 2014.
       ``(D) Treatment of dc zone.--The District of Columbia 
     Enterprise Zone shall not be treated as an empowerment zone 
     for purposes of this paragraph.''.
       (b) Conforming Amendment.--Paragraph (8) of section 1(h) is 
     amended by striking ``means'' and all that follows and 
     inserting ``means the excess of--
       ``(A) the gain which would be excluded from gross income 
     under section 1202 but for the percentage limitation in 
     section 1202(a), over
       ``(B) the gain excluded from gross income under section 
     1202.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to stock acquired after the date of the enactment 
     of this Act.
                   Subtitle C--New Markets Tax Credit

     SEC. 621. NEW MARKETS TAX CREDIT.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business-related credits) is amended 
     by adding at the end the following new section:

     ``SEC. 45D. NEW MARKETS TAX CREDIT.

       ``(a) Allowance of Credit.--
       ``(1) In general.--For purposes of section 38, in the case 
     of a taxpayer who holds a qualified equity investment on a 
     credit allowance date of such investment which occurs during 
     the taxable year, the new markets tax credit determined under 
     this section for such taxable year is an amount equal to the 
     applicable percentage of the amount paid to the qualified 
     community development entity for such investment at its 
     original issue.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage is--
       ``(A) 5 percent with respect to the first 3 credit 
     allowance dates, and
       ``(B) 6 percent with respect to the remainder of the credit 
     allowance dates.
       ``(3) Credit allowance date.--For purposes of paragraph 
     (1), the term `credit allowance date' means, with respect to 
     any qualified equity investment--
       ``(A) the date on which such investment is initially made, 
     and
       ``(B) each of the 6 anniversary dates of such date 
     thereafter.
       ``(b) Qualified Equity Investment.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified equity investment' 
     means any equity investment in a qualified community 
     development entity if--
       ``(A) such investment is acquired by the taxpayer at its 
     original issue (directly or through an underwriter) solely in 
     exchange for cash,
       ``(B) substantially all of such cash is used by the 
     qualified community development entity to make qualified low-
     income community investments, and
       ``(C) such investment is designated for purposes of this 
     section by the qualified community development entity.

     Such term shall not include any equity investment issued by a 
     qualified community development entity more than 5 years 
     after the date that such entity receives an allocation under 
     subsection (f). Any allocation not used within such 5-year 
     period may be reallocated by the Secretary under subsection 
     (f).
       ``(2) Limitation.--The maximum amount of equity investments 
     issued by a qualified community development entity which may 
     be designated under paragraph (1)(C) by such entity shall not 
     exceed the portion of the limitation amount allocated under 
     subsection (f) to such entity.
       ``(3) Safe harbor for determining use of cash.--The 
     requirement of paragraph (1)(B) shall be treated as met if at 
     least 85 percent of the aggregate gross assets of the 
     qualified community development entity are invested in 
     qualified low-income community investments.
       ``(4) Treatment of subsequent purchasers.--The term 
     `qualified equity investment' includes any equity investment 
     which would (but for paragraph (1)(A)) be a qualified equity 
     investment in the hands of the taxpayer if such investment 
     was a qualified equity investment in the hands of a prior 
     holder.
       ``(5) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this subsection.
       ``(6) Equity investment.--The term `equity investment' 
     means--
       ``(A) any stock (other than nonqualified preferred stock as 
     defined in section 351(g)(2)) in an entity which is a 
     corporation, and
       ``(B) any capital interest in an entity which is a 
     partnership.
       ``(c) Qualified Community Development Entity.--For purposes 
     of this section--
       ``(1) In general.--The term `qualified community 
     development entity' means any domestic corporation or 
     partnership if--
       ``(A) the primary mission of the entity is serving, or 
     providing investment capital for, low-income communities or 
     low-income persons,
       ``(B) the entity maintains accountability to residents of 
     low-income communities through their representation on any 
     governing board of the entity or on any advisory board to the 
     entity, and
       ``(C) the entity is certified by the Secretary for purposes 
     of this section as being a qualified community development 
     entity.
       ``(2) Special rules for certain organizations.--The 
     requirements of paragraph (1) shall be treated as met by--
       ``(A) any specialized small business investment company (as 
     defined in section 1044(c)(3)), and
       ``(B) any community development financial institution (as 
     defined in section 103 of the Community Development Banking 
     and Financial Institutions Act of 1994 (12 U.S.C. 4702)).
       ``(d) Qualified Low-Income Community Investments.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified low-income community 
     investment' means--
       ``(A) any equity investment in, or loan to, any qualified 
     active low-income community business,
       ``(B) the purchase from another community development 
     entity of any loan made by such entity which is a qualified 
     low-income community investment,
       ``(C) financial counseling and other services specified in 
     regulations prescribed by the Secretary to businesses located 
     in, and residents of, low-income communities, and
       ``(D) any equity investment in, or loan to, any qualified 
     community development entity.

[[Page H10942]]

       ``(2) Qualified active low-income community business.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `qualified active low-income community business' means, with 
     respect to any taxable year, any corporation (including a 
     nonprofit corporation) or partnership if for such year--
       ``(i) at least 50 percent of the total gross income of such 
     entity is derived from the active conduct of a qualified 
     business within any low-income community,
       ``(ii) a substantial portion of the use of the tangible 
     property of such entity (whether owned or leased) is within 
     any low-income community,
       ``(iii) a substantial portion of the services performed for 
     such entity by its employees are performed in any low-income 
     community,
       ``(iv) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to collectibles (as defined in section 
     408(m)(2)) other than collectibles that are held primarily 
     for sale to customers in the ordinary course of such 
     business, and
       ``(v) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to nonqualified financial property (as defined 
     in section 1397C(e)).
       ``(B) Proprietorship.--Such term shall include any business 
     carried on by an individual as a proprietor if such business 
     would meet the requirements of subparagraph (A) were it 
     incorporated.
       ``(C) Portions of business may be qualified active low-
     income community business.--The term `qualified active low-
     income community business' includes any trades or businesses 
     which would qualify as a qualified active low-income 
     community business if such trades or businesses were 
     separately incorporated.
       ``(3) Qualified business.--For purposes of this subsection, 
     the term `qualified business' has the meaning given to such 
     term by section 1397C(d); except that--
       ``(A) in lieu of applying paragraph (2)(B) thereof, the 
     rental to others of real property located in any low-income 
     community shall be treated as a qualified business if there 
     are substantial improvements located on such property, and
       ``(B) paragraph (3) thereof shall not apply.
       ``(e) Low-Income Community.--For purposes of this section--
       ``(1) In general.--The term `low-income community' means 
     any population census tract if--
       ``(A) the poverty rate for such tract is at least 20 
     percent, or
       ``(B)(i) in the case of a tract not located within a 
     metropolitan area, the median family income for such tract 
     does not exceed 80 percent of statewide median family income, 
     or
       ``(ii) in the case of a tract located within a metropolitan 
     area, the median family income for such tract does not exceed 
     80 percent of the greater of statewide median family income 
     or the metropolitan area median family income.
       ``(2) Targeted areas.--The Secretary may designate any area 
     within any census tract as a low-income community if--
       ``(A) the boundary of such area is continuous,
       ``(B) the area would satisfy the requirements of paragraph 
     (1) if it were a census tract, and
       ``(C) an inadequate access to investment capital exists in 
     such area.
       ``(3) Areas not within census tracts.--In the case of an 
     area which is not tracted for population census tracts, the 
     equivalent county divisions (as defined by the Bureau of the 
     Census for purposes of defining poverty areas) shall be used 
     for purposes of determining poverty rates and median family 
     income.
       ``(f) National Limitation on Amount of Investments 
     Designated.--
       ``(1) In general.--There is a new markets tax credit 
     limitation for each calendar year. Such limitation is--
       ``(A) $1,000,000,000 for 2001,
       ``(B) $1,500,000,000 for 2002 and 2003,
       ``(C) $2,000,000,000 for 2004 and 2005, and
       ``(D) $3,500,000,000 for 2006 and 2007.
       ``(2) Allocation of limitation.--The limitation under 
     paragraph (1) shall be allocated by the Secretary among 
     qualified community development entities selected by the 
     Secretary. In making allocations under the preceding 
     sentence, the Secretary shall give priority to any entity--
       ``(A) with a record of having successfully provided capital 
     or technical assistance to disadvantaged businesses or 
     communities, or
       ``(B) which intends to satisfy the requirement under 
     subsection (b)(1)(B) by making qualified low-income community 
     investments in 1 or more businesses in which persons 
     unrelated to such entity (within the meaning of section 
     267(b) or 707(b)(1)) hold the majority equity interest.
       ``(3) Carryover of unused limitation.--If the new markets 
     tax credit limitation for any calendar year exceeds the 
     aggregate amount allocated under paragraph (2) for such year, 
     such limitation for the succeeding calendar year shall be 
     increased by the amount of such excess. No amount may be 
     carried under the preceding sentence to any calendar year 
     after 2014.
       ``(g) Recapture of Credit In Certain Cases.--
       ``(1) In general.--If, at any time during the 7-year period 
     beginning on the date of the original issue of a qualified 
     equity investment in a qualified community development 
     entity, there is a recapture event with respect to such 
     investment, then the tax imposed by this chapter for the 
     taxable year in which such event occurs shall be increased by 
     the credit recapture amount.
       ``(2) Credit recapture amount.--For purposes of paragraph 
     (1), the credit recapture amount is an amount equal to the 
     sum of--
       ``(A) the aggregate decrease in the credits allowed to the 
     taxpayer under section 38 for all prior taxable years which 
     would have resulted if no credit had been determined under 
     this section with respect to such investment, plus
       ``(B) interest at the underpayment rate established under 
     section 6621 on the amount determined under subparagraph (A) 
     for each prior taxable year for the period beginning on the 
     due date for filing the return for the prior taxable year 
     involved.

     No deduction shall be allowed under this chapter for interest 
     described in subparagraph (B).
       ``(3) Recapture event.--For purposes of paragraph (1), 
     there is a recapture event with respect to an equity 
     investment in a qualified community development entity if--
       ``(A) such entity ceases to be a qualified community 
     development entity,
       ``(B) the proceeds of the investment cease to be used as 
     required of subsection (b)(1)(B), or
       ``(C) such investment is redeemed by such entity.
       ``(4) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (1) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     this subsection shall not be treated as a tax imposed by this 
     chapter for purposes of determining the amount of any credit 
     under this chapter or for purposes of section 55.
       ``(h) Basis Reduction.--The basis of any qualified equity 
     investment shall be reduced by the amount of any credit 
     determined under this section with respect to such 
     investment. This subsection shall not apply for purposes of 
     sections 1202, 1400B, and 1400F.
       ``(i) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section, 
     including regulations--
       ``(1) which limit the credit for investments which are 
     directly or indirectly subsidized by other Federal tax 
     benefits (including the credit under section 42 and the 
     exclusion from gross income under section 103),
       ``(2) which prevent the abuse of the purposes of this 
     section,
       ``(3) which provide rules for determining whether the 
     requirement of subsection (b)(1)(B) is treated as met,
       ``(4) which impose appropriate reporting requirements, and
       ``(5) which apply the provisions of this section to newly 
     formed entities.''.
       (b) Credit Made Part of General Business Credit.--
       (1) In general.--Subsection (b) of section 38 is amended by 
     striking ``plus'' at the end of paragraph (11), by striking 
     the period at the end of paragraph (12) and inserting ``, 
     plus'', and by adding at the end the following new paragraph:
       ``(13) the new markets tax credit determined under section 
     45D(a).''.
       (2) Limitation on carryback.--Subsection (d) of section 39 
     is amended by adding at the end the following new paragraph:
       ``(9) No carryback of new markets tax credit before january 
     1, 2001.--No portion of the unused business credit for any 
     taxable year which is attributable to the credit under 
     section 45D may be carried back to a taxable year ending 
     before January 1, 2001.''.
       (c) Deduction for Unused Credit.--Subsection (c) of section 
     196 is amended by striking ``and'' at the end of paragraph 
     (7), by striking the period at the end of paragraph (8) and 
     inserting ``, and'', and by adding at the end the following 
     new paragraph:
       ``(9) the new markets tax credit determined under section 
     45D(a).''.
       (d) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following new item:

``Sec. 45D. New markets tax credit.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to investments made after December 31, 2000.
       (f) Guidance on Allocation of National Limitation.--Not 
     later than 120 days after the date of the enactment of this 
     Act, the Secretary of the Treasury or the Secretary's 
     delegate shall issue guidance which specifies--
       (1) how entities shall apply for an allocation under 
     section 45D(f)(2) of the Internal Revenue Code of 1986, as 
     added by this section;
       (2) the competitive procedure through which such 
     allocations are made; and
       (3) the actions that such Secretary or delegate shall take 
     to ensure that such allocations are properly made to 
     appropriate entities.
       (g) Audit and Report.--Not later than January 31 of 2004, 
     2007, and 2010, the Comptroller General of the United States 
     shall, pursuant to an audit of the new markets tax credit 
     program established under section 45D of the Internal Revenue 
     Code of 1986 (as added by subsection (a)), report to Congress 
     on such program, including all qualified community 
     development entities that receive an allocation under the new 
     markets credit under such section.
         Subtitle D--Improvements in Low-Income Housing Credit

     SEC. 631. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING 
                   CREDIT.

       (a) In General.--Clauses (i) and (ii) of section 
     42(h)(3)(C) (relating to State housing credit ceiling) are 
     amended to read as follows:
       ``(i) the unused State housing credit ceiling (if any) of 
     such State for the preceding calendar year,
       ``(ii) the greater of--

       ``(I) $1.75 ($1.50 for 2001) multiplied by the State 
     population, or
       ``(II) $2,000,000,''.

       (b) Adjustment of State Ceiling for Increases in Cost-of-
     Living.--Paragraph (3) of

[[Page H10943]]

     section 42(h) (relating to housing credit dollar amount for 
     agencies) is amended by adding at the end the following new 
     subparagraph:
       ``(H) Cost-of-living adjustment.--
       ``(i) In general.--In the case of a calendar year after 
     2002, the $2,000,000 and $1.75 amounts in subparagraph (C) 
     shall each be increased by an amount equal to--

       ``(I) such dollar amount, multiplied by
       ``(II) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2001' for `calendar year 1992' in subparagraph 
     (B) thereof.

       ``(ii) Rounding.--

       ``(I) In the case of the $2,000,000 amount, any increase 
     under clause (i) which is not a multiple of $5,000 shall be 
     rounded to the next lowest multiple of $5,000.
       ``(II) In the case of the $1.75 amount, any increase under 
     clause (i) which is not a multiple of 5 cents shall be 
     rounded to the next lowest multiple of 5 cents.''.

       (c) Conforming Amendments.--
       (1) Section 42(h)(3)(C), as amended by subsection (a), is 
     amended--
       (A) by striking ``clause (ii)'' in the matter following 
     clause (iv) and inserting ``clause (i)''; and
       (B) by striking ``clauses (i)'' in the matter following 
     clause (iv) and inserting ``clauses (ii)''.
       (2) Section 42(h)(3)(D)(ii) is amended--
       (A) by striking ``subparagraph (C)(ii)'' and inserting 
     ``subparagraph (C)(i)''; and
       (B) by striking ``clauses (i)'' in subclause (II) and 
     inserting ``clauses (ii)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to calendar years after 2000.

     SEC. 632. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING 
                   CREDITS AMONG PROJECTS.

       (a) Selection Criteria.--Subparagraph (C) of section 
     42(m)(1) (relating to certain selection criteria must be 
     used) is amended--
       (1) by inserting ``, including whether the project includes 
     the use of existing housing as part of a community 
     revitalization plan'' before the comma at the end of clause 
     (iii); and
       (2) by striking clauses (v), (vi), and (vii) and inserting 
     the following new clauses:
       ``(v) tenant populations with special housing needs,
       ``(vi) public housing waiting lists,
       ``(vii) tenant populations of individuals with children, 
     and
       ``(viii) projects intended for eventual tenant 
     ownership.''.
       (b) Preference for Community Revitalization Projects 
     Located in Qualified Census Tracts.--Clause (ii) of section 
     42(m)(1)(B) is amended by striking ``and'' at the end of 
     subclause (I), by adding ``and'' at the end of subclause 
     (II), and by inserting after subclause (II) the following new 
     subclause:

       ``(III) projects which are located in qualified census 
     tracts (as defined in subsection (d)(5)(C)) and the 
     development of which contributes to a concerted community 
     revitalization plan,''.

     SEC. 633. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT 
                   AGENCIES.

       (a) Market Study; Public Disclosure of Rationale for Not 
     Following Credit Allocation Priorities.--Subparagraph (A) of 
     section 42(m)(1) (relating to responsibilities of housing 
     credit agencies) is amended by striking ``and'' at the end of 
     clause (i), by striking the period at the end of clause (ii) 
     and inserting a comma, and by adding at the end the following 
     new clauses:
       ``(iii) a comprehensive market study of the housing needs 
     of low-income individuals in the area to be served by the 
     project is conducted before the credit allocation is made and 
     at the developer's expense by a disinterested party who is 
     approved by such agency, and
       ``(iv) a written explanation is available to the general 
     public for any allocation of a housing credit dollar amount 
     which is not made in accordance with established priorities 
     and selection criteria of the housing credit agency.''.
       (b) Site Visits.--Clause (iii) of section 42(m)(1)(B) 
     (relating to qualified allocation plan) is amended by 
     inserting before the period ``and in monitoring for 
     noncompliance with habitability standards through regular 
     site visits''.

     SEC. 634. MODIFICATIONS TO RULES RELATING TO BASIS OF 
                   BUILDING WHICH IS ELIGIBLE FOR CREDIT.

       (a) Adjusted Basis To Include Portion of Certain Buildings 
     Used by Low-Income Individuals Who Are Not Tenants and by 
     Project Employees.--Paragraph (4) of section 42(d) (relating 
     to special rules relating to determination of adjusted basis) 
     is amended--
       (1) by striking ``subparagraph (B)'' in subparagraph (A) 
     and inserting ``subparagraphs (B) and (C)'';
       (2) by redesignating subparagraph (C) as subparagraph (D); 
     and
       (3) by inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) Inclusion of basis of property used to provide 
     services for certain nontenants.--
       ``(i) In general.--The adjusted basis of any building 
     located in a qualified census tract (as defined in paragraph 
     (5)(C)) shall be determined by taking into account the 
     adjusted basis of property (of a character subject to the 
     allowance for depreciation and not otherwise taken into 
     account) used throughout the taxable year in providing any 
     community service facility.
       ``(ii) Limitation.--The increase in the adjusted basis of 
     any building which is taken into account by reason of clause 
     (i) shall not exceed 10 percent of the eligible basis of the 
     qualified low-income housing project of which it is a part. 
     For purposes of the preceding sentence, all community service 
     facilities which are part of the same qualified low-income 
     housing project shall be treated as one facility.
       ``(iii) Community service facility.--For purposes of this 
     subparagraph, the term `community service facility' means any 
     facility designed to serve primarily individuals whose income 
     is 60 percent or less of area median income (within the 
     meaning of subsection (g)(1)(B)).''.
       (b) Certain Native American Housing Assistance Disregarded 
     in Determining Whether Building Is Federally Subsidized for 
     Purposes of the Low-Income Housing Credit.--Subparagraph (E) 
     of section 42(i)(2) (relating to determination of whether 
     building is federally subsidized) is amended--
       (1) in clause (i), by inserting ``or the Native American 
     Housing Assistance and Self-Determination Act of 1996 (25 
     U.S.C. 4101 et seq.) (as in effect on October 1, 1997)'' 
     after ``this subparagraph)''; and
       (2) in the subparagraph heading, by inserting ``or native 
     american housing assistance'' after ``home assistance''.

     SEC. 635. OTHER MODIFICATIONS.

       (a) Allocation of Credit Limit to Certain Buildings.--
       (1) The first sentence of section 42(h)(1)(E)(ii) is 
     amended by striking ``(as of'' the first place it appears and 
     inserting ``(as of the later of the date which is 6 months 
     after the date that the allocation was made or''.
       (2) The last sentence of section 42(h)(3)(C) is amended by 
     striking ``project which'' and inserting ``project which 
     fails to meet the 10 percent test under paragraph (1)(E)(ii) 
     on a date after the close of the calendar year in which the 
     allocation was made or which''.
       (b) Determination of Whether Buildings Are Located in High 
     Cost Areas.--The first sentence of section 42(d)(5)(C)(ii)(I) 
     is amended--
       (1) by inserting ``either'' before ``in which 50 percent''; 
     and
       (2) by inserting before the period ``or which has a poverty 
     rate of at least 25 percent''.

     SEC. 636. CARRYFORWARD RULES.

       (a) In General.--Clause (ii) of section 42(h)(3)(D) 
     (relating to unused housing credit carryovers allocated among 
     certain States) is amended by striking ``the excess'' and all 
     that follows and inserting ``the excess (if any) of--

       ``(I) the unused State housing credit ceiling for the year 
     preceding such year, over
       ``(II) the aggregate housing credit dollar amount allocated 
     for such year.''.

       (b) Conforming Amendment.--The second sentence of section 
     42(h)(3)(C) (relating to State housing credit ceiling) is 
     amended by striking ``clauses (i) and (iii)'' and inserting 
     ``clauses (i) through (iv)''.

     SEC. 637. EFFECTIVE DATE.

       Except as otherwise provided in this title, the amendments 
     made by this title shall apply to--
       (1) housing credit dollar amounts allocated after December 
     31, 2000; and
       (2) buildings placed in service after such date to the 
     extent paragraph (1) of section 42(h) of the Internal Revenue 
     Code of 1986 does not apply to any building by reason of 
     paragraph (4) thereof, but only with respect to bonds issued 
     after such date.
     Subtitle E--Other Community Renewal and New Markets Assistance

     SEC. 641. TRANSFER OF UNOCCUPIED AND SUBSTANDARD HUD-HELD 
                   HOUSING TO LOCAL GOVERNMENTS AND COMMUNITY 
                   DEVELOPMENT CORPORATIONS.

       Section 204 of the Departments of Veterans Affairs and 
     Housing and Urban Development, and Independent Agencies 
     Appropriations Act, 1997 (12 U.S.C. 1715z-11a) is amended--
       (1) by striking ``Flexible Authority.--'' and inserting 
     ``Disposition of HUD-Owned Properties. (a) Flexible Authority 
     for Multifamily Projects.--''; and
       (2) by adding at the end the following new subsection:
       ``(b) Transfer of Unoccupied and Substandard Housing to 
     Local Governments and Community Development Corporations.--
       ``(1) Transfer authority.--Notwithstanding the authority 
     under subsection (a) and the last sentence of section 204(g) 
     of the National Housing Act (12 U.S.C. 1710(g)), the 
     Secretary of Housing and Urban Development shall transfer 
     ownership of any qualified HUD property, subject to the 
     requirements of this section, to a unit of general local 
     government having jurisdiction for the area in which the 
     property is located or to a community development corporation 
     which operates within such a unit of general local government 
     in accordance with this subsection, but only to the extent 
     that units of general local government and community 
     development corporations consent to transfer and the 
     Secretary determines that such transfer is practicable.
       ``(2) Qualified hud properties.--For purposes of this 
     subsection, the term `qualified HUD property' means any 
     property for which, as of the date that notification of the 
     property is first made under paragraph (3)(B), not less than 
     6 months have elapsed since the later of the date that the 
     property was acquired by the Secretary or the date that the 
     property was determined to be unoccupied or substandard, that 
     is owned by the Secretary and is--
       ``(A) an unoccupied multifamily housing project;
       ``(B) a substandard multifamily housing project; or
       ``(C) an unoccupied single family property that--
       ``(i) has been determined by the Secretary not to be an 
     eligible asset under section 204(h) of the National Housing 
     Act (12 U.S.C. 1710(h)); or
       ``(ii) is an eligible asset under such section 204(h), 
     but--

       ``(I) is not subject to a specific sale agreement under 
     such section; and
       ``(II) has been determined by the Secretary to be 
     inappropriate for continued inclusion in the

[[Page H10944]]

     program under such section 204(h) pursuant to paragraph (10) 
     of such section.

       ``(3) Timing.--The Secretary shall establish procedures 
     that provide for--
       ``(A) time deadlines for transfers under this subsection;
       ``(B) notification to units of general local government and 
     community development corporations of qualified HUD 
     properties in their jurisdictions;
       ``(C) such units and corporations to express interest in 
     the transfer under this subsection of such properties;
       ``(D) a right of first refusal for transfer of qualified 
     HUD properties to units of general local government and 
     community development corporations, under which--
       ``(i) the Secretary shall establish a period during which 
     the Secretary may not transfer such properties except to such 
     units and corporations;
       ``(ii) the Secretary shall offer qualified HUD properties 
     that are single family properties for purchase by units of 
     general local government at a cost of $1 for each property, 
     but only to the extent that the costs to the Federal 
     Government of disposal at such price do not exceed the costs 
     to the Federal Government of disposing of property subject to 
     the procedures for single family property established by the 
     Secretary pursuant to the authority under the last sentence 
     of section 204(g) of the National Housing Act (12 U.S.C. 
     1710(g));
       ``(iii) the Secretary may accept an offer to purchase a 
     property made by a community development corporation only if 
     the offer provides for purchase on a cost recovery basis; and
       ``(iv) the Secretary shall accept an offer to purchase such 
     a property that is made during such period by such a unit or 
     corporation and that complies with the requirements of this 
     paragraph;
       ``(E) a written explanation, to any unit of general local 
     government or community development corporation making an 
     offer to purchase a qualified HUD property under this 
     subsection that is not accepted, of the reason that such 
     offer was not acceptable.
       ``(4) Other disposition.--With respect to any qualified HUD 
     property, if the Secretary does not receive an acceptable 
     offer to purchase the property pursuant to the procedure 
     established under paragraph (3), the Secretary shall dispose 
     of the property to the unit of general local government in 
     which property is located or to community development 
     corporations located in such unit of general local government 
     on a negotiated, competitive bid, or other basis, on such 
     terms as the Secretary deems appropriate.
       ``(5) Satisfaction of indebtedness.--Before transferring 
     ownership of any qualified HUD property pursuant to this 
     subsection, the Secretary shall satisfy any indebtedness 
     incurred in connection with the property to be transferred, 
     by canceling the indebtedness.
       ``(6) Determination of status of properties.--To ensure 
     compliance with the requirements of this subsection, the 
     Secretary shall take the following actions:
       ``(A) Upon enactment.--Upon the enactment of this 
     subsection, the Secretary shall promptly assess each 
     residential property owned by the Secretary to determine 
     whether such property is a qualified HUD property.
       ``(B) Upon acquisition.--Upon acquiring any residential 
     property, the Secretary shall promptly determine whether the 
     property is a qualified HUD property.
       ``(C) Updates.--The Secretary shall periodically reassess 
     the residential properties owned by the Secretary to 
     determine whether any such properties have become qualified 
     HUD properties.
       ``(7) Tenant leases.--This subsection shall not affect the 
     terms or the enforceability of any contract or lease entered 
     into with respect to any residential property before the date 
     that such property becomes a qualified HUD property.
       ``(8) Use of property.--Property transferred under this 
     subsection shall be used only for appropriate neighborhood 
     revitalization efforts, including homeownership, rental 
     units, commercial space, and parks, consistent with local 
     zoning regulations, local building codes, and subdivision 
     regulations and restrictions of record.
       ``(9) Inapplicability to properties made available for 
     homeless.--Notwithstanding any other provision of this 
     subsection, this subsection shall not apply to any properties 
     that the Secretary determines are to be made available for 
     use by the homeless pursuant to subpart E of part 291 of 
     title 24, Code of Federal Regulations, during the period that 
     the properties are so available.
       ``(10) Protection of existing contracts.--This subsection 
     may not be construed to alter, affect, or annul any legally 
     binding obligations entered into with respect to a qualified 
     HUD property before the property becomes a qualified HUD 
     property.
       ``(11) Definitions.--For purposes of this subsection, the 
     following definitions shall apply:
       ``(A) Community development corporation.--The term 
     `community development corporation' means a nonprofit 
     organization whose primary purpose is to promote community 
     development by providing housing opportunities for low-income 
     families.
       ``(B) Cost recovery basis.--The term `cost recovery basis' 
     means, with respect to any sale of a residential property by 
     the Secretary, that the purchase price paid by the purchaser 
     is equal to or greater than the sum of: (i) the appraised 
     value of the property, as determined in accordance with such 
     requirements as the Secretary shall establish; and (ii) the 
     costs incurred by the Secretary in connection with such 
     property during the period beginning on the date on which the 
     Secretary acquires title to the property and ending on the 
     date on which the sale is consummated.
       ``(C) Multifamily housing project.--The term `multifamily 
     housing project' has the meaning given the term in section 
     203 of the Housing and Community Development Amendments of 
     1978.
       ``(D) Residential property.--The term `residential 
     property' means a property that is a multifamily housing 
     project or a single family property.
       ``(E) Secretary.--The term `Secretary' means the Secretary 
     of Housing and Urban Development.
       ``(F) Severe physical problems.--The term `severe physical 
     problems' means, with respect to a dwelling unit, that the 
     unit--
       ``(i) lacks hot or cold piped water, a flush toilet, or 
     both a bathtub and a shower in the unit, for the exclusive 
     use of that unit;
       ``(ii) on not less than three separate occasions during the 
     preceding winter months, was uncomfortably cold for a period 
     of more than 6 consecutive hours due to a malfunction of the 
     heating system for the unit;
       ``(iii) has no functioning electrical service, exposed 
     wiring, any room in which there is not a functioning 
     electrical outlet, or has experienced three or more blown 
     fuses or tripped circuit breakers during the preceding 90-day 
     period;
       ``(iv) is accessible through a public hallway in which 
     there are no working light fixtures, loose or missing steps 
     or railings, and no elevator; or
       ``(v) has severe maintenance problems, including water 
     leaks involving the roof, windows, doors, basement, or pipes 
     or plumbing fixtures, holes or open cracks in walls or 
     ceilings, severe paint peeling or broken plaster, and signs 
     of rodent infestation.
       ``(G) Single family property.--The term `single family 
     property' means a 1- to 4-family residence.
       ``(H) Substandard.--The term `substandard' means, with 
     respect to a multifamily housing project, that 25 percent or 
     more of the dwelling units in the project have severe 
     physical problems.
       ``(I) Unit of general local government.--The term `unit of 
     general local government' has the meaning given such term in 
     section 102(a) of the Housing and Community Development Act 
     of 1974.
       ``(J) Unoccupied.--The term `unoccupied' means, with 
     respect to a residential property, that the unit of general 
     local government having jurisdiction over the area in which 
     the project is located has certified in writing that the 
     property is not inhabited.
       ``(12) Regulations.--
       ``(A) Interim.--Not later than 30 days after the date of 
     the enactment of this subsection, the Secretary shall issue 
     such interim regulations as are necessary to carry out this 
     subsection.
       ``(B) Final.--Not later than 60 days after the date of the 
     enactment of this subsection, the Secretary shall issue such 
     final regulations as are necessary to carry out this 
     subsection.''.

     SEC. 642. TRANSFER OF HUD ASSETS IN REVITALIZATION AREAS.

       In carrying out the program under section 204(h) of the 
     National Housing Act (12 U.S.C. 1710(h)), upon the request of 
     the chief executive officer of a county or the government of 
     appropriate jurisdiction and not later than 60 days after 
     such request is made, the Secretary of Housing and Urban 
     Development shall designate as a revitalization area all 
     portions of such county that meet the criteria for such 
     designation under paragraph (3) of such section.

     SEC. 643. RISK-SHARING DEMONSTRATION.

       Section 249 of the National Housing Act (12 U.S.C. 1715z-
     14) is amended--
       (1) by striking the section heading and inserting the 
     following:


                    ``risk-sharing demonstration'';

       (2) by striking ``reinsurance'' each place such term 
     appears and insert ``risk-sharing'';
       (3) in subsection (a)--
       (A) in the first sentence, by inserting ``and with insured 
     community development financial institutions'' after 
     ``private mortgage insurers'';
       (B) in the second sentence--
       (i) by striking ``two'' and inserting ``four''; and
       (ii) by striking ``March 15, 1988'' and inserting ``the 
     expiration of the 5-year period beginning on the date of the 
     enactment of the Taxpayer Relief Act of 2000''; and
       (C) in the third sentence--
       (i) by striking ``insured'' and inserting ``for which risk 
     of nonpayment is shared''; and
       (ii) by striking ``10 percent'' and inserting ``20 
     percent'';
       (4) in subsection (b)--
       (A) in the first sentence--
       (i) by striking ``to provide'' and inserting ``, in 
     providing'';
       (ii) by striking ``through'' and inserting ``, to enter 
     into''; and
       (iii) by inserting ``and with insured community development 
     financial institutions'' before the period at the end;
       (B) in the second sentence, by inserting ``and insured 
     community development financial institutions'' after 
     ``private mortgage insurance companies'';
       (C) by striking paragraph (1) and inserting the following 
     new paragraph:
       ``(1) assume a secondary percentage of loss on any mortgage 
     insured pursuant to section 203(b), 234, or 245 covering a 
     one- to four-family dwelling, which percentage of loss shall 
     be set forth in the risk-sharing contract, with the first 
     percentage of loss to be borne by the Secretary;''; and
       (D) in paragraph (2)--
       (i) by striking ``carry out (under appropriate delegation) 
     such'' and inserting ``perform or delegate underwriting,'';
       (ii) by striking ``function as the Secretary pursuant to 
     regulations,'' and inserting ``functions as the Secretary''; 
     and
       (iii) by inserting before the period at the end the 
     following: ``and shall set forth in the risk-sharing 
     contract'';

[[Page H10945]]

       (5) in subsection (c)--
       (A) in the first sentence--
       (i) by striking ``of'' the first place it appears and 
     inserting ``for'';
       (ii) by inserting ``received by the Secretary with a 
     private mortgage insurer or insured community development 
     financial institution'' after ``sharing of premiums''
       (iii) by striking ``insurance reserves'' and inserting 
     ``loss reserves'';
       (iv) by striking ``such insurance'' and inserting ``such 
     risk-sharing contract''; and
       (v) by striking ``right'' and inserting ``rights''; and
       (B) in the second sentence--
       (i) by inserting ``or insured community development 
     financial institution'' after ``private mortgage insurance 
     company''; and
       (ii) by striking ``for insurance'' and inserting ``for 
     risk-sharing'';
       (6) in subsection (d), by inserting ``or insured community 
     development financial institution'' after ``private mortgage 
     insurance company''; and
       (7) by adding at the end the following new subsection:
       ``(e) Insured Community Development Financial 
     Institution.--For purposes of this section, the term `insured 
     community development financial institution' means a 
     community development financial institution, as such term is 
     defined in section 103 of Reigle Community Development and 
     Regulatory Improvement Act of 1994 (12 U.S.C. 4702) that is 
     an insured depository institution (as such term is defined in 
     section 3 of the Federal Deposit Insurance Act (12 U.S.C. 
     1813)) or an insured credit union (as such term is defined in 
     section 101 of the Federal Credit Union Act (12 U.S.C. 
     1752)).''.

     SEC. 644. PREVENTION AND TREATMENT OF SUBSTANCE ABUSE; 
                   SERVICES PROVIDED THROUGH RELIGIOUS 
                   ORGANIZATIONS.

       Title V of the Public Health Service Act (42 U.S.C. 290aa 
     et seq.) is amended by adding at the end the following part:

      ``Part G--Services Provided Through Religious Organizations

     ``SEC. 581. APPLICABILITY TO DESIGNATED PROGRAMS.

       ``(a) Designated Programs.--Subject to subsection (b), this 
     part applies to discretionary and formula grant programs 
     administered by the Substance Abuse and Mental Health 
     Services Administration that make awards of financial 
     assistance to public or private entities for the purpose of 
     carrying out activities to prevent or treat substance abuse 
     (in this part referred to as a `designated program'). 
     Designated programs include the program under subpart II of 
     part B of title XIX (relating to formula grants to the 
     States).
       ``(b) Limitation.--This part does not apply to any award of 
     financial assistance under a designated program for a purpose 
     other than the purpose specified in subsection (a).
       ``(c) Definitions.--For purposes of this part (and subject 
     to subsection (b)):
       ``(1) The term `designated program' has the meaning given 
     such term in subsection (a).
       ``(2) The term `financial assistance' means a grant, 
     cooperative agreement, or contract.
       ``(3) The term `program beneficiary' means an individual 
     who receives program services.
       ``(4) The term `program participant' means a public or 
     private entity that has received financial assistance under a 
     designated program.
       ``(5) The term `program services' means treatment for 
     substance abuse, or preventive services regarding such abuse, 
     provided pursuant to an award of financial assistance under a 
     designated program.
       ``(6) The term `religious organization' means a nonprofit 
     religious organization.

     ``SEC. 582. RELIGIOUS ORGANIZATIONS AS PROGRAM PARTICIPANTS.

       ``(a) In General.--Notwithstanding any other provision of 
     law, a religious organization, on the same basis as any other 
     nonprofit private provider--
       ``(1) may receive financial assistance under a designated 
     program; and
       ``(2) may be a provider of services under a designated 
     program.
       ``(b) Religious Organizations.--The purpose of this section 
     is to allow religious organizations to be program 
     participants on the same basis as any other nonprofit private 
     provider without impairing the religious character of such 
     organizations, and without diminishing the religious freedom 
     of program beneficiaries.
       ``(c) Nondiscrimination Against Religious Organizations.--
       ``(1) Eligibility as program participants.--Religious 
     organizations are eligible to be program participants on the 
     same basis as any other nonprofit private organization as 
     long as the programs are implemented consistent with the 
     Establishment Clause and Free Exercise Clause of the First 
     Amendment to the United States Constitution. Nothing in this 
     Act shall be construed to restrict the ability of the Federal 
     Government, or a State or local government receiving funds 
     under such programs, to apply to religious organizations the 
     same eligibility conditions in designated programs as are 
     applied to any other nonprofit private organization.
       ``(2) Nondiscrimination.--Neither the Federal Government 
     nor a State or local government receiving funds under 
     designated programs shall discriminate against an 
     organization that is or applies to be a program participant 
     on the basis that the organization has a religious character.
       ``(d) Religious Character and Freedom.--
       ``(1) Religious organizations.--Except as provided in this 
     section, any religious organization that is a 
     program participant shall retain its independence from 
     Federal, State, and local government, including such 
     organization's control over the definition, development, 
     practice, and expression of its religious beliefs.
       ``(2) Additional safeguards.--Neither the Federal 
     Government nor a State shall require a religious organization 
     to--
       ``(A) alter its form of internal governance; or
       ``(B) remove religious art, icons, scripture, or other 
     symbols,
     in order to be a program participant.
       ``(e) Employment Practices.--Nothing in this section shall 
     be construed to modify or affect the provisions of any other 
     Federal or State law or regulation that relates to 
     discrimination in employment. A religious organization's 
     exemption provided under section 702 of the Civil Rights Act 
     of 1964 regarding employment practices shall not be affected 
     by its participation in, or receipt of funds from, a 
     designated program.
       ``(f) Rights of Program Beneficiaries.--
       ``(1) In general.--If an individual who is a program 
     beneficiary or a prospective program beneficiary objects to 
     the religious character of a program participant, within a 
     reasonable period of time after the date of such objection 
     such program participant shall refer such individual to, and 
     the appropriate Federal, State, or local government that 
     administers a designated program or is a program participant 
     shall provide to such individual (if otherwise eligible for 
     such services), program services that--
       ``(A) are from an alternative provider that is accessible 
     to, and has the capacity to provide such services to, such 
     individual; and
       ``(B) have a value that is not less than the value of the 
     services that the individual would have received from the 
     program participant to which the individual had such 
     objection.

     Upon referring a program beneficiary to an alternative 
     provider, the program participant shall notify the 
     appropriate Federal, State, or local government agency that 
     administers the program of such referral.
       ``(2) Notices.--Program participants, public agencies that 
     refer individuals to designated programs, and the appropriate 
     Federal, State, or local governments that administer 
     designated programs or are program participants shall ensure 
     that notice is provided to program beneficiaries or 
     prospective program beneficiaries of their rights under this 
     section.
       ``(3) Additional requirements.--A program participant 
     making a referral pursuant to paragraph (1) shall--
       ``(A) prior to making such referral, consider any list that 
     the State or local government makes available of entities in 
     the geographic area that provide program services; and
       ``(B) ensure that the individual makes contact with the 
     alternative provider to which the individual is referred.
       ``(4) Nondiscrimination.--A religious organization that is 
     a program participant shall not in providing program services 
     or engaging in outreach activities under designated programs 
     discriminate against a program beneficiary or prospective 
     program beneficiary on the basis of religion or religious 
     belief.
       ``(g) Fiscal Accountability.--
       ``(1) In general.--Except as provided in paragraph (2), any 
     religious organization that is a program participant shall be 
     subject to the same regulations as other recipients of awards 
     of Federal financial assistance to account, in accordance 
     with generally accepted auditing principles, for the use of 
     the funds provided under such awards.
       ``(2) Limited audit.--With respect to the award involved, a 
     religious organization that is a program participant shall 
     segregate Federal amounts provided under award into a 
     separate account from non-Federal funds. Only the award funds 
     shall be subject to audit by the government.
       ``(h) Compliance.--With respect to compliance with this 
     section by an agency, a religious organization may obtain 
     judicial review of agency action in accordance with chapter 7 
     of title 5, United States Code.

     ``SEC. 583. LIMITATIONS ON USE OF FUNDS FOR CERTAIN PURPOSES.

       ``No funds provided under a designated program shall be 
     expended for sectarian worship, instruction, or 
     proselytization.

     ``SEC. 584. EDUCATIONAL REQUIREMENTS FOR PERSONNEL IN DRUG 
                   TREATMENT PROGRAMS.

       ``(a) Findings.--The Congress finds that--
       ``(1) establishing unduly rigid or uniform educational 
     qualification for counselors and other personnel in drug 
     treatment programs may undermine the effectiveness of such 
     programs; and
       ``(2) such educational requirements for counselors and 
     other personnel may hinder or prevent the provision of needed 
     drug treatment services.
       ``(b) Nondiscrimination.--In determining whether personnel 
     of a program participant that has a record of successful drug 
     treatment for the preceding three years have satisfied State 
     or local requirements for education and training, a State or 
     local government shall not discriminate against education and 
     training provided to such personnel by a religious 
     organization, so long as such education and training includes 
     basic content substantially equivalent to the content 
     provided by nonreligious organizations that the State or 
     local government would credit for purposes of determining 
     whether the relevant requirements have been satisfied.''.
                      Subtitle F--Other Provisions

     SEC. 651. ACCELERATION OF PHASE-IN OF INCREASE IN VOLUME CAP 
                   ON PRIVATE ACTIVITY BONDS.

       (a) In General.--Paragraphs (1) and (2) of section 146(d) 
     (relating to State ceiling) are amended to read as follows:
       ``(1) In general.--The State ceiling applicable to any 
     State for any calendar year shall be the greater of--
       ``(A) an amount equal to $75 ($62.50 in the case of 
     calendar year 2001) multiplied by the State population, or
       ``(B) $225,000,000 ($187,500,000 in the case of calendar 
     year 2001).

[[Page H10946]]

       ``(2) Cost-of-living adjustment.--In the case of a calendar 
     year after 2002, each of the dollar amounts contained in 
     paragraph (1) shall be increased by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2001' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any increase determined under the preceding sentence is 
     not a multiple of $5 ($5,000 in the case of the dollar amount 
     in paragraph (1)(B)), such increase shall be rounded to the 
     nearest multiple thereof.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to calendar years after 2000.

     SEC. 652. MODIFICATIONS TO EXPENSING OF ENVIRONMENTAL 
                   REMEDIATION COSTS.

       (a) Expensing Not Limited to Sites in Targeted Areas.--
     Subsection (c) of section 198 is amended to read as follows:
       ``(c) Qualified Contaminated Site.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified contaminated site' 
     means any area--
       ``(A) which is held by the taxpayer for use in a trade or 
     business or for the production of income, or which is 
     property described in section 1221(a)(1) in the hands of the 
     taxpayer, and
       ``(B) at or on which there has been a release (or threat of 
     release) or disposal of any hazardous substance.
       ``(2) National priorities listed sites not included.--Such 
     term shall not include any site which is on, or proposed for, 
     the national priorities list under section 105(a)(8)(B) of 
     the Comprehensive Environmental Response, Compensation, and 
     Liability Act of 1980 (as in effect on the date of the 
     enactment of this section).
       ``(3) Taxpayer must receive statement from state 
     environmental agency.--An area shall be treated as a 
     qualified contaminated site with respect to expenditures paid 
     or incurred during any taxable year only if the taxpayer 
     receives a statement from the appropriate agency of the State 
     in which such area is located that such area meets the 
     requirement of paragraph (1)(B).
       ``(4) Appropriate state agency.--For purposes of paragraph 
     (3), the chief executive officer of each State may, in 
     consultation with the Administrator of the Environmental 
     Protection Agency, designate the appropriate State 
     environmental agency within 60 days of the date of the 
     enactment of this section. If the chief executive officer of 
     a State has not designated an appropriate environmental 
     agency within such 60-day period, the appropriate 
     environmental agency for such State shall be designated by 
     the Administrator of the Environmental Protection Agency.''.
       (b) Extension of Termination Date.--Subsection (h) of 
     section 198 is amended by striking ``2001'' and inserting 
     ``2003''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenditures paid or incurred after the date 
     of the enactment of this Act.

     SEC. 653. EXTENSION OF DC HOMEBUYER TAX CREDIT.

       Section 1400C(i) (relating to application of section) is 
     amended by striking ``2002'' and inserting ``2004''.
   TITLE VII--ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL PROVISIONS
                 Subtitle A--Administrative Provisions

     SEC. 701. EXEMPTION OF CERTAIN REPORTING REQUIREMENTS.

       Section 3003(a)(1) of the Federal Reports Elimination and 
     Sunset Act of 1995 (31 U.S.C. 1113 note) shall not apply to 
     any report required to be submitted under any of the 
     following provisions of law:
       (1) Section 13031(f) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (19 U.S.C. 58c(f)).
       (2) Section 16(c) of the Foreign Trade Zones Act (19 U.S.C. 
     81p(c)).
       (3) The following provisions of the Tariff Act of 1930:
       (A) Section 330(c)(1) (19 U.S.C. 1330(c)(1)).
       (B) Section 607(c) (19 U.S.C. 1607(c)).
       (4) Section 5 of the International Coffee Agreement Act of 
     1980 (19 U.S.C. 1356n).
       (5) Section 351(a)(2) of the Trade Expansion Act of 1962 
     (19 U.S.C. 1981(a)(2)).
       (6) Section 502 of the Automotive Products Trade Act of 
     1965 (19 U.S.C. 2032).
       (7) Section 3131 of the Customs Enforcement Act of 1986 (19 
     U.S.C. 2081).
       (8) The following provisions of the Trade Act of 1974 (19 
     U.S.C. 2101 et seq.):
       (A) Section 102(b)(4)(A)(ii)(I) (19 U.S.C. 
     2112(b)(4)(A)(ii)(I)).
       (B) Section 102(e)(1) (19 U.S.C. 2112(e)(1)).
       (C) Section 102(e)(2) (19 U.S.C. 2112(e)(2)).
       (D) Section 104(d) (19 U.S.C. 2114(d)).
       (E) Section 125(e) (19 U.S.C. 2135(e)).
       (F) Section 135(e)(1) (19 U.S.C. 2155(e)(1)).
       (G) Section 141(c) (19 U.S.C. 2171(c)).
       (H) Section 162 (19 U.S.C. 2212).
       (I) Section 163(b) (19 U.S.C. 2213(b)).
       (J) Section 163(c) (19 U.S.C. 2213(c)).
       (K) Section 203(b) (19 U.S.C. 2253(b)).
       (L) Section 302(b)(2)(C) (19 U.S.C. 2412(b)(2)(C)).
       (M) Section 303 (19 U.S.C. 2413).
       (N) Section 309 (19 U.S.C. 2419).
       (O) Section 407(a) (19 U.S.C. 2437(a)).
       (P) Section 502(f) (19 U.S.C. 2462(f)).
       (Q) Section 504 (19 U.S.C. 2464).
       (9) The following provisions of the Trade Agreements Act of 
     1979 (19 U.S.C. 2501 et seq.):
       (A) Section 2(b) (19 U.S.C. 2503(b)).
       (B) Section 3(c) (19 U.S.C. 2504(c)).
       (C) Section 305(c) (19 U.S.C. 2515(c)).
       (10) Section 303(g)(1) of the Convention on Cultural 
     Property Implementation Act (19 U.S.C. 2602(g)(1)).
       (11) The following provisions of the Caribbean Basin 
     Economic Recovery Act (19 U.S.C. 2701 et seq.):
       (A) Section 212(a)(1)(A) (19 U.S.C. 2702(a)(1)(A)).
       (B) Section 212(a)(2) (19 U.S.C. 2702(a)(2)).
       (12) The following provisions of the Omnibus Trade and 
     Competitiveness Act of 1988 (19 U.S.C. 2901 et seq.):
       (A) Section 1102 (19 U.S.C. 2902).
       (B) Section 1103 (19 U.S.C. 2903).
       (C) Section 1206(b) (19 U.S.C. 3006(b)).
       (13) Section 123(a) of the Customs and Trade Act of 1990 
     (Public Law 101-382) (19 U.S.C. 2083).
       (14) Section 243(b)(2) of the Caribbean Basin Economic 
     Recovery Expansion Act of 1990 (Public Law 101-382).
       (15) The following provisions of the Internal Revenue Code 
     of 1986:
       (A) Section 6103(p)(5).
       (B) Section 7608.
       (C) Section 7802(f)(3).
       (D) Section 8022(3).
       (E) Section 9602(a).
       (16) The following provisions relating to the revenue laws 
     of the United States:
       (A) Section 1552(c) of the Tax Reform Act of 1986 (100 
     Stat. 2753).
       (B) Section 231 of the Deficit Reduction Act of 1984 (26 
     U.S.C. 801 note).
       (C) Section 208 of the Tax Treatment Extension Act of 1977 
     (26 U.S.C. 911 note).
       (D) Section 7105 of the Technical and Miscellaneous Revenue 
     Act of 1988 (45 U.S.C. 369).
       (17) Section 4008 of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1308).
       (18) Section 426 of the Black Lung Benefits Act (30 U.S.C. 
     936(b)).
       (19) Section 7502(g) of title 31, United States Code.
       (20) The following provisions of the Social Security Act:
       (A) Section 215(i)(2)(C)(i) (42 U.S.C. 415(i)(2)(C)(i)).
       (B) Section 221(i)(2) (42 U.S.C. 421(i)(2)).
       (C) Section 221(i)(3) (42 U.S.C. 421(i)(3)).
       (D) Section 233(e)(1) (42 U.S.C. 433(e)(1)).
       (E) Section 452(a)(10) (42 U.S.C. 652(a)(10)).
       (F) Section 452(g)(3)(B) (42 U.S.C. 652(g)(3)(B)).
       (G) Section 506(a)(1) (42 U.S.C. 706(a)).
       (H) Section 908 (42 U.S.C. 1108).
       (I) Section 1114(f) (42 U.S.C. 1314(f)).
       (J) Section 1120 (42 U.S.C. 1320).
       (K) Section 1161 (42 U.S.C. 1320c-10).
       (L) Section 1875(b) (42 U.S.C. 1395ll(b)).
       (M) Section 1881 (42 U.S.C. 1395rr).
       (N) Section 1882 (42 U.S.C. 1395ss(f)(2)).
       (21) Section 104(b) of the Social Security Independence and 
     Program Improvements Act of 1994 (42 USC 904 note).
       (22) Section 10 of the Railroad Retirement Act of 1937 (45 
     U.S.C. 231f).
       (23) The following provisions of the Railroad Retirement 
     Act of 1974:
       (A) Section 22(a)(1) (45 U.S.C. 231u(a)(1)).
       (B) Section 22(b)(1) (45 U.S.C. 231u(b)(1)).
       (24) Section 502 of the Railroad Retirement Solvency Act of 
     1983 (45 U.S.C. 231f-1).
       (25) Section 47121(c) of title 49, United States Code.
       (26) The following provisions of the Omnibus Budget 
     Reconciliation Act of 1987 (Public Law 100-203; 101 Stat. 
     1330-182):
       (A) Section 4007(c)(4) (42 U.S.C. 1395ww note).
       (B) Section 4079 (42 U.S.C. 1395mm note).
       (C) Section 4205 (42 U.S.C. 1395i-3 note).
       (D) Section 4215 (42 U.S.C. 1396r note).
       (27) The following provisions of the Inspector General Act 
     of 1978 (Public Law 95-452):
       (A) Section 5(b).
       (B) Section 5(d).
       (28) The following provisions of the Public Health Service 
     Act:
       (A) In section 308(a) (42 U.S.C. 242m(a)), subparagraphs 
     (A), (B), (C), and (D) of paragraph (1).
       (B) Section 403 (42 U.S.C. 283).
       (29) Section 404 of the Health Services and Centers 
     Amendments of 1978 (42 U.S.C. 242p) (Public Law 95-626).
       (30) The following provisions of the Older Americans Act of 
     1965:
       (A) Section 206(d) (42 U.S.C. 3017(d)).
       (B) Section 207 (42 U.S.C. 3018).
       (31) Section 308 of the Age Discrimination Act of 1975 (42 
     U.S.C. 6106a(b)).
       (32) Section 509(c)(3) of the Americans with Disabilities 
     Act 0f 1990 (42 U.S.C. 12209(c)(3)).
       (33) Section 4207(f) of the Omnibus Budget Reconciliation 
     Act of 1990 (42 U.S.C. 1395b-1 note).

     SEC. 702. EXTENSION OF DEADLINES FOR IRS COMPLIANCE WITH 
                   CERTAIN NOTICE REQUIREMENTS.

       (a) Annual Installment Agreement Notice.--Section 3506 of 
     the Internal Revenue Service Restructuring and Reform Act of 
     1998 is amended by striking ``July 1, 2000'' and inserting 
     ``September 1, 2001''.
       (b) Notice Requirements Relating to Computation of 
     Penalty.--Subsection (c) of section 3306 of the Internal 
     Revenue Service Restructuring and Reform Act of 1998 is 
     amended--
       (1) by striking ``December 31, 2000'' and inserting ``June 
     30, 2001'', and
       (2) by adding at the end the following: ``In the case of 
     any notice of penalty issued after June 30, 2001, and before 
     July 1, 2003, the requirements of section 6751(a) of the 
     Internal Revenue Code of 1986 shall be treated as met if such 
     notice contains a telephone number at which the taxpayer can 
     request a copy of the taxpayer's assessment and payment 
     history with respect to such penalty.''.
       (c) Notice Requirements Relating to Interest Imposed.--
     Subsection (c) of section 3308 of the Internal Revenue 
     Service Restructuring and Reform Act of 1998 is amended--
       (1) by striking ``December 31, 2000'' and inserting ``June 
     30, 2001'', and
       (2) by adding at the end the following: ``In the case of 
     any notice issued after June 30, 2001,

[[Page H10947]]

     and before July 1, 2003, to which section 6631 of the 
     Internal Revenue Code of 1986 applies, the requirements of 
     section 6631 of such Code shall be treated as met if such 
     notice contains a telephone number at which the taxpayer can 
     request a copy of the taxpayer's payment history relating to 
     interest amounts included in such notice.''.

     SEC. 703. EXTENSION OF AUTHORITY FOR UNDERCOVER OPERATIONS.

       Paragraph (6), and the last sentence, of section 7608(c) 
     are each amended by striking ``January 1, 2001'' and 
     inserting ``January 1, 2006''.

     SEC. 704. CONFIDENTIALITY OF CERTAIN DOCUMENTS RELATING TO 
                   CLOSING AND SIMILAR AGREEMENTS AND TO 
                   AGREEMENTS WITH FOREIGN GOVERNMENTS.

       (a) Closing and Similar Agreements Treated As Return 
     Information.--Paragraph (2) of section 6103(b) (defining 
     return information) is amended by striking ``and'' at the end 
     of subparagraph (B), by inserting ``and'' at the end of 
     subparagraph (C), and by inserting after subparagraph (C) the 
     following new subparagraph:
       ``(D) any agreement under section 7121, and any similar 
     agreement, and any background information related to such an 
     agreement or request for such an agreement,''.
       (b) Agreements With Foreign Governments.--
       (1) In general.--Subchapter B of chapter 61 (relating to 
     miscellaneous provisions) is amended by inserting after 
     section 6104 the following new section:

     ``SEC. 6105. CONFIDENTIALITY OF INFORMATION ARISING UNDER 
                   TREATY OBLIGATIONS.

       ``(a) In General.--Tax convention information shall not be 
     disclosed.
       ``(b) Exceptions.--Subsection (a) shall not apply--
       ``(1) to the disclosure of tax convention information to 
     persons or authorities (including courts and administrative 
     bodies) which are entitled to such disclosure pursuant to a 
     tax convention,
       ``(2) to any generally applicable procedural rules 
     regarding applications for relief under a tax convention, or
       ``(3) in any case not described in paragraphs (1) or (2), 
     to the disclosure of any tax convention information not 
     relating to a particular taxpayer if the Secretary 
     determines, after consultation with each other party to the 
     tax convention, that such disclosure would not impair tax 
     administration.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Tax convention information.--The term `tax convention 
     information' means any--
       ``(A) agreement entered into with the competent authority 
     of one or more foreign governments pursuant to a tax 
     convention,
       ``(B) application for relief under a tax convention,
       ``(C) any background information related to such agreement 
     or application,
       ``(D) document implementing such agreement, and
       ``(E) any other information exchanged pursuant to a tax 
     convention which is treated as confidential or secret under 
     the tax convention.
       ``(2) Tax convention.--The term `tax convention' means--
       ``(A) any income tax or gift and estate tax convention, or
       ``(B) any other convention or bilateral agreement 
     (including multilateral conventions and agreements and any 
     agreement with a possession of the United States) providing 
     for the avoidance of double taxation, the prevention of 
     fiscal evasion, nondiscrimination with respect to taxes, the 
     exchange of tax relevant information with the United States, 
     or mutual assistance in tax matters.
       ``(d) Cross References.--

  ``For penalties for the unauthorized disclosure of tax convention 
information which is return or return information, see sections 7213, 
7213A, and 7431.''.

       (2) Clerical amendment.--The table of sections for 
     subchapter B of chapter 61 is amended by inserting after the 
     item relating to section 6104 the following new item:

``Sec. 6105. Confidentiality of information arising under treaty 
              obligations.''.

       (c) Exception From Public Inspection as Written 
     Determination.--
       (1) Closing and similar agreements.--Paragraph (1) of 
     section 6110(b) is amended to read as follows:
       ``(1) Written determination.--
       ``(A) In general.--The term `written determination' means a 
     ruling, determination letter, technical advice memorandum, or 
     Chief Counsel advice.
       ``(B) Exceptions.--Such term shall not include any matter 
     referred to in subparagraph (C) or (D) of section 
     6103(b)(2).''.
       (2) Agreements with foreign governments.--Paragraph (1) of 
     section 6110(l) is amended by inserting ``or 6105'' after 
     ``6104''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 705. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS 
                   ON REFUNDS AND CREDITS.

       (a) General Rule.--Subsections (a) and (b) of section 6405 
     are each amended by striking ``$1,000,000'' and inserting 
     ``$2,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act, 
     except that such amendment shall not apply with respect to 
     any refund or credit with respect to a report that has been 
     made before such date of the enactment under section 6405 of 
     the Internal Revenue Code of 1986.

     SEC. 706. TREATMENT OF MISSING CHILDREN WITH RESPECT TO 
                   CERTAIN TAX BENEFITS.

       (a) In General.--Subsection (c) of section 151 (relating to 
     additional exemption for dependents) is amended by adding at 
     the end the following new paragraph:
       ``(6) Treatment of missing children.--
       ``(A) In general.--Solely for the purposes referred to in 
     subparagraph (B), a child of the taxpayer--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such child or the taxpayer, and
       ``(ii) who was (without regard to this paragraph) the 
     dependent of the taxpayer for the portion of the taxable year 
     before the date of the kidnapping,

     shall be treated as a dependent of the taxpayer for all 
     taxable years ending during the period that the child is 
     kidnapped.
       ``(B) Purposes.--Subparagraph (A) shall apply solely for 
     purposes of determining--
       ``(i) the deduction under this section,
       ``(ii) the credit under section 24 (relating to child tax 
     credit), and
       ``(iii) whether an individual is a surviving spouse or a 
     head of a household (such terms are defined in section 2).
       ``(C) Comparable treatment for earned income credit.--For 
     purposes of section 32, an individual--
       ``(i) who is presumed by law enforcement authorities to 
     have been kidnapped by someone who is not a member of the 
     family of such individual or the taxpayer, and
       ``(ii) who had, for the taxable year in which the 
     kidnapping occurred, the same principal place of abode as the 
     taxpayer for more than one-half of the portion of such year 
     before the date of the kidnapping,

     shall be treated as meeting the requirement of section 
     32(c)(3)(A)(ii) with respect to a taxpayer for all taxable 
     years ending during the period that the individual is 
     kidnapped.
       ``(D) Termination of treatment.--Subparagraphs (A) and (C) 
     shall cease to apply as of the first taxable year of the 
     taxpayer beginning after the calendar year in which there is 
     a determination that the child is dead (or, if earlier, in 
     which the child would have attained age 18).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 707. AMENDMENTS TO STATUTES REFERENCING YIELD ON 52-WEEK 
                   TREASURY BILLS.

       (a) Amendment to the Act of February 26, 1931.--Section 6 
     of the Act of February 26, 1931 (40 U.S.C. 258e-1) (relating 
     to the interest rate on compensation owed for takings of 
     property) is amended--
       (1) in paragraph (1), by striking ``the coupon issue yield 
     equivalent (as determined by the Secretary of the Treasury) 
     of the average accepted auction price for the last auction of 
     52 week United States Treasury bills settled immediately 
     before'' and inserting ``the weekly average 1-year constant 
     maturity Treasury yield, as published by the Board of 
     Governors of the Federal Reserve System, for the calendar 
     week preceding''; and
       (2) in paragraph (2), by striking ``the coupon issue yield 
     equivalent (as determined by the Secretary of the Treasury) 
     of the average accepted auction price for the last auction of 
     52 week United States Treasury bills settled immediately 
     before'' and inserting ``the weekly average 1-year constant 
     maturity Treasury yield, as published by the Board of 
     Governors of the Federal Reserve System, for the calendar 
     week preceding''.
       (b) Amendment to Title 18, United States Code.--Section 
     3612(f)(2)(B) of title 18, United States Code (relating to 
     the interest rate on unpaid criminal fines and penalties of 
     more than $2,500) is amended by striking ``the coupon 
     issue yield equivalent (as determined by the Secretary of 
     the Treasury) of the average accepted auction price for 
     the last auction of fifty-two week United States Treasury 
     bills settled before'' and inserting `the weekly average 
     1-year constant maturity Treasury yield, as published by 
     the Board of Governors of the Federal Reserve System, for 
     the calendar week preceding.''.
       (c) Amendment to the Internal Revenue Code.--Section 
     995(f)(4) (relating to the interest rate on tax-deferred 
     liability of shareholders of domestic international sales 
     corporations) is amended by striking ``the average investment 
     yield of United States Treasury bills with maturities of 52 
     weeks which were auctioned during the 1-year period'' and 
     inserting ``the average of the 1-year constant maturity 
     Treasury yields, as published by the Board of Governors of 
     the Federal Reserve System, for the 1-year period''.
       (d) Amendments to Title 28, United States Code.--
       (1) Amendment to section 1961.--Section 1961(a) of title 
     28, United States Code (relating to the interest rate on 
     money judgments in civil cases recovered in Federal district 
     court) is amended by striking ``the coupon issue yield 
     equivalent (as determined by the Secretary of the Treasury) 
     of the average accepted auction price for the last auction of 
     fifty-two week United States Treasury bills settled 
     immediately prior to'' and inserting ``the weekly average 1-
     year constant maturity Treasury yield, as published by the 
     Board of Governors of the Federal Reserve System, for the 
     calendar week preceding.''.
       (2) Amendment to section 2516.--Section 2516(b) of title 
     28, United States Code (relating to the interest rate on a 
     judgment against the United States affirmed by the Supreme 
     Court after review on petition of the United States) is 
     amended by striking ``the coupon issue yield equivalent (as 
     determined by the Secretary of the Treasury) of the average 
     accepted auction

[[Page H10948]]

     price for the last auction of fifty-two week United States 
     Treasury bills settled immediately before'' and inserting 
     ``the weekly average 1-year constant maturity Treasury yield, 
     as published by the Board of Governors of the Federal Reserve 
     System, for the calendar week preceding''.

     SEC. 708. ADJUSTMENTS FOR CONSUMER PRICE INDEX ERROR.

       (a) Determinations by OMB.--As soon as practicable after 
     the date of the enactment of this Act, the Director of the 
     Office of Management and Budget shall determine with respect 
     to each applicable Federal benefit program whether the CPI 
     computation error for 1999 has or will result in a shortfall 
     in payments to beneficiaries under such program (as compared 
     to payments that would have been made if the error had not 
     occurred). As soon as practicable after the date of the 
     enactment of this Act, but not later than 60 days after such 
     date, the Director shall direct the head of the Federal 
     agency which administers such program to make a payment or 
     payments that, insofar as the Director finds practicable and 
     feasible--
       (1) are targeted to the amount of the shortfall experienced 
     by individual beneficiaries, and
       (2) compensate for the shortfall.
       (b) Coordination With Federal Agencies.--As soon as 
     practicable after the date of the enactment of this Act, each 
     Federal agency that administers an applicable Federal benefit 
     program shall, in accordance with such guidelines as are 
     issued by the Director pursuant to this section, make an 
     initial determination of whether, and the extent to which, 
     the CPI computation error for 1999 has or will result in a 
     shortfall in payments to beneficiaries of an applicable 
     Federal benefit program administered by such agency. Not 
     later than 30 days after such date, the head of such agency 
     shall submit a report to the Director and to each House of 
     the Congress of such determination, together with a complete 
     description of the nature of the shortfall.
       (c) Implementation Pursuant to Agency Reports.--Upon 
     receipt of the report submitted by a Federal agency pursuant 
     to subsection (b), the Director shall review the initial 
     determination of the agency, the agency's description of the 
     nature of the shortfall, and the compensation payments 
     proposed by the agency. Prior to directing payment of such 
     payments pursuant to subsection (a), the Director shall make 
     appropriate adjustments (if any) in the compensation payments 
     proposed by the agency that the Director determines are 
     necessary to comply with the requirements of subsection (a) 
     and transmit to the agency a summary report of the review, 
     indicating any adjustments made by the Director. The agency 
     shall make the compensation payments as directed by the 
     Director pursuant to subsection (a) in accordance with the 
     Director's summary report.
       (d) Income Disregard Under Federal Means-Tested Benefit 
     Programs.--A payment made under this section to compensate 
     for a shortfall in benefits shall, in accordance with 
     guidelines issued by the Director pursuant to this section, 
     be disregarded in determining income under title VIII of the 
     Social Security Act or any applicable Federal benefit program 
     that is means-tested.
       (e) Funding.--Funds otherwise available under each 
     applicable Federal benefit program for making benefit 
     payments under such program are hereby made available for 
     making compensation payments under this section in connection 
     with such program.
       (f) No Judicial Review.--No action taken pursuant to this 
     section shall be subject to judicial review.
       (g) Director's Report.--Not later than April 1, 2001, the 
     Director shall submit to each House of the Congress a report 
     on the activities performed by the Director pursuant to this 
     section.
       (h) Definitions.--For purposes of this section:
       (1) Applicable federal benefit program.--The term 
     ``applicable Federal benefit program'' means any program of 
     the Government of the United States providing for regular or 
     periodic payments or cash assistance paid directly to 
     individual beneficiaries, as determined by the Director of 
     the Office of Management and Budget.
       (2) Federal agency.--The term ``Federal agency'' means a 
     department, agency, or instrumentality of the Government of 
     the United States.
       (3) CPI computation error for 1999.--The term ``CPI 
     computation error for 1999'' means the error in the 
     computation of the Consumer Price Index announced by the 
     Bureau of Labor Statistics on September 28, 2000.
       (i) Tax Provisions.--If any Consumer Price Index (as 
     defined in section 1(f)(5) of the Internal Revenue Code of 
     1986) reflects the CPI computation error for 1999--
       (1) the correct amount of such Index shall (in such manner 
     and to such extent as the Secretary of the Treasury 
     determines to be appropriate) be taken into account for 
     purposes of such Code, and
       (2) tables prescribed under section 1(f) of such Code to 
     reflect such correct amount shall apply in lieu of any tables 
     that were prescribed based on the erroneous amount.

     SEC. 709. PREVENTION OF DUPLICATION OF LOSS THROUGH 
                   ASSUMPTION OF LIABILITIES GIVING RISE TO A 
                   DEDUCTION.

       (a) In General.--Section 358 (relating to basis to 
     distributees) is amended by adding at the end the following 
     new subsection:
       ``(h) Special Rules for Assumption of Liabilities To Which 
     Subsection (d) Does Not Apply.--
       ``(1) In general.--If, after application of the other 
     provisions of this section to an exchange or series of 
     exchanges, the basis of property to which subsection (a)(1) 
     applies exceeds the fair market value of such property, then 
     such basis shall be reduced (but not below such fair market 
     value) by the amount (determined as of the date of the 
     exchange) of any liability--
       ``(A) which is assumed in exchange for such property, and
       ``(B) with respect to which subsection (d)(1) does not 
     apply to the assumption.
       ``(2) Exceptions.--Except as provided by the Secretary, 
     paragraph (1) shall not apply to any liability if--
       ``(A) the trade or business with which the liability is 
     associated is transferred to the person assuming the 
     liability as part of the exchange, or
       ``(B) substantially all of the assets with which the 
     liability is associated are transferred to the person 
     assuming the liability as part of the exchange.
       ``(3) Liability.--For purposes of this subsection, the term 
     `liability' shall include any fixed or contingent obligation 
     to make payment, without regard to whether the obligation is 
     otherwise taken into account for purposes of this title.''
       (b) Determination of Amount of Liability Assumed.--Section 
     357(d)(1) is amended by inserting ``section 358(h),'' after 
     ``section 358(d),''.
       (c) Application of Comparable Rules to Partnerships and S 
     Corporations.--The Secretary of the Treasury or his 
     delegate--
       (1) shall prescribe rules which provide appropriate 
     adjustments under subchapter K of chapter 1 of the Internal 
     Revenue Code of 1986 to prevent the acceleration or 
     duplication of losses through the assumption of (or transfer 
     of assets subject to) liabilities described in section 
     358(h)(3) of such Code (as added by subsection (a)) in 
     transactions involving partnerships, and
       (2) may prescribe rules which provide appropriate 
     adjustments under subchapter S of chapter 1 of such Code in 
     transactions described in paragraph (1) involving S 
     corporations rather than partnerships.
       (d) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to assumptions of liability after October 18, 1999.
       (2) Rules.--The rules prescribed under subsection (c) shall 
     apply to assumptions of liability after October 18, 1999, or 
     such later date as may be prescribed in such rules.
                  Subtitle B--Miscellaneous Provisions

     SEC. 710. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON 
                   RAILROADS AND INLAND WATERWAY TRANSPORTATION 
                   WHICH REMAIN IN GENERAL FUND.

       (a) Taxes on Trains.--
       (1) In general.--Subparagraph (A) of section 4041(a)(1) is 
     amended by striking ``or a diesel-powered train'' each place 
     it appears and by striking ``or train''.
       (2) Conforming amendments.--
       (A) Subparagraph (C) of section 4041(a)(1) is amended by 
     striking clause (ii) and by redesignating clause (iii) as 
     clause (ii).
       (B) Subparagraph (C) of section 4041(b)(1) is amended by 
     striking all that follows ``section 6421(e)(2)'' and 
     inserting a period.
       (C) Subsection (d) of section 4041 is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Diesel fuel used in trains.--There is hereby imposed 
     a tax of 0.1 cent per gallon on any liquid other than 
     gasoline (as defined in section 4083)--
       ``(A) sold by any person to an owner, lessee, or other 
     operator of a diesel-powered train for use as a fuel in such 
     train, or
       ``(B) used by any person as a fuel in a diesel-powered 
     train unless there was a taxable sale of such fuel under 
     subparagraph (A).

     No tax shall be imposed by this paragraph on the sale or use 
     of any liquid if tax was imposed on such liquid under section 
     4081.''
       (D) Subsection (e) of section 4082 is amended by striking 
     ``section 4041(a)(1)'' and inserting ``subsections (d)(3) and 
     (a)(1) of section 4041, respectively''.
       (E) Paragraph (3) of section 4083(a) is amended by striking 
     ``or a diesel-powered train''.
       (F) Paragraph (3) of section 6421(f) is amended to read as 
     follows:
       ``(3) Gasoline used in trains.--In the case of gasoline 
     used as a fuel in a train, this section shall not apply with 
     respect to the Leaking Underground Storage Tank Trust Fund 
     financing rate under section 4081.''
       (G) Paragraph (3) of section 6427(l) is amended to read as 
     follows:
       ``(3) Refund of certain taxes on fuel used in diesel-
     powered trains.--For purposes of this subsection, the term 
     `nontaxable use' includes fuel used in a diesel-powered 
     train. The preceding sentence shall not apply to the tax 
     imposed by section 4041(d) and the Leaking Underground 
     Storage Tank Trust Fund financing rate under section 4081 
     except with respect to fuel sold for exclusive use by a State 
     or any political subdivision thereof.''
       (b) Fuel Used on Inland Waterways.--
       (1) In general.--Paragraph (1) of section 4042(b) is 
     amended by adding ``and'' at the end of subparagraph (A), by 
     striking ``, and'' at the end of subparagraph (B) and 
     inserting a period, and by striking subparagraph (C).
       (2) Conforming amendment.--Paragraph (2) of section 4042(b) 
     is amended by striking subparagraph (C).
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 2001.

     SEC. 711. REPEAL OF REDUCTION OF DEDUCTIONS FOR MUTUAL LIFE 
                   INSURANCE COMPANIES.

       (a) In General.--Section 809 (relating to reductions in 
     certain deductions of mutual life insurance companies) is 
     hereby repealed.
       (b) Conforming Amendments Related to Repeal of Section 
     809.--
       (1) Subsections (a)(2)(B) and (b)(1)(B) of section 807 are 
     each amended by striking ``the sum of (i)'' and by striking 
     ``plus (ii) any excess described in section 809(a)(2) for the 
     taxable year,''.

[[Page H10949]]

       (2)(A) The last sentence of section 807(d)(1) is amended by 
     striking ``(as defined in section 809(b)(4)(B))''.
       (B) Subsection (d) of section 807 is amended by adding at 
     the end the following new paragraph:
       ``(6) Statutory reserves.--For purposes of this subsection, 
     the term `statutory reserves' means the aggregate amount set 
     forth in the annual statement with respect to items described 
     in subsection (c). Such term shall not include any reserve 
     attributable to a deferred and uncollected premium if the 
     establishment of such reserve is not permitted under section 
     811(c).''
       (3) Subsection (c) of section 808 is amended to read as 
     follows:
       ``(c) Amount of Deduction.--The deduction for policyholder 
     dividends for any taxable year shall be an amount equal to 
     the policyholder dividends paid or accrued during the taxable 
     year.''
       (4) Subparagraph (A) of section 812(b)(3) is amended by 
     striking ``sections 808 and 809'' and inserting ``section 
     808''.
       (5) Subsection (c) of section 817 is amended by striking 
     ``(other than section 809)''.
       (6) Subsection (c) of section 842 is amended by striking 
     paragraph (3) and by redesignating paragraph (4) as paragraph 
     (3).
       (7) The table of sections for subpart C of part I of 
     subchapter L of chapter 1 is amended by striking the item 
     relating to section 809.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 712. REPEAL OF POLICYHOLDERS SURPLUS ACCOUNT PROVISIONS.

       (a) Repeal.--Section 815 (relating to distributions to 
     shareholders from pre-1984 policyholders surplus accounts) is 
     hereby repealed.
       (b) Conforming Amendments.--
       (1) Section 801 is amended by striking subsection (c).
       (2) The table of sections for subpart D of part I of 
     subchapter L of chapter 1 is amended by striking the item 
     relating to section 815.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 713. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

       (a) In General.--Part IV of subchapter A of chapter 1 
     (relating to credits against tax) is amended by adding at the 
     end the following new subpart:

``Subpart H--Nonrefundable Credit for Holders of Qualified Amtrak Bonds

``Sec. 54. Credit to holders of qualified Amtrak bonds.

     ``SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a qualified Amtrak bond on a credit allowance date of 
     such bond which occurs during the taxable year, there shall 
     be allowed as a credit against the tax imposed by this 
     chapter for such taxable year an amount equal to the sum of 
     the credits determined under subsection (b) with respect to 
     credit allowance dates during such year on which the taxpayer 
     holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a qualified Amtrak bond is 25 percent of the annual 
     credit determined with respect to such bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any qualified Amtrak bond is the product of--
       ``(A) the applicable credit rate, multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Applicable credit rate.--For purposes of paragraph 
     (2), the applicable credit rate with respect to an issue is 
     the rate equal to an average market yield (as of the day 
     before the date of sale of the issue) on outstanding long-
     term corporate debt obligations (determined under regulations 
     prescribed by the Secretary).
       ``(4) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed.
       ``(c) Limitation Based on Amount of Tax.--
       ``(1) In general.--The credit allowed under subsection (a) 
     for any taxable year shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under this part 
     (other than this subpart and subpart C).
       ``(2) Carryover of unused credit.--If the credit allowable 
     under subsection (a) exceeds the limitation imposed by 
     paragraph (1) for such taxable year, such excess shall be 
     carried to the succeeding taxable year and added to the 
     credit allowable under subsection (a) for such taxable year.
       ``(d) Qualified Amtrak Bond.--For purposes of this part--
       ``(1) In general.--The term `qualified Amtrak bond' means 
     any bond issued as part of an issue if--
       ``(A) 95 percent or more of the proceeds of such issue are 
     to be used for any qualified project,
       ``(B) the bond is issued by the National Railroad Passenger 
     Corporation,
       ``(C) the issuer--
       ``(i) designates such bond for purposes of this section,
       ``(ii) certifies that it meets the State contribution 
     requirement of paragraph (3) with respect to such project and 
     that it has received the required State contribution payment 
     before the issuance of such bond, and
       ``(iii) certifies that it has obtained the written approval 
     of the Secretary of Transportation for such project, 
     including a finding by the Inspector General of the 
     Department of Transportation that there is a reasonable 
     likelihood that the proposed program will result in a 
     positive incremental financial contribution to the National 
     Railroad Passenger Corporation and that the investment 
     evaluation process includes a return on investment, 
     leveraging of funds (including State capital and operating 
     contributions), cost effectiveness, safety improvement, 
     mobility improvement, and feasibility,
       ``(D) the term of each bond which is part of such issue 
     does not exceed 20 years,
       ``(E) the payment of principal with respect to such bond is 
     the obligation of the National Railroad Passenger Corporation 
     (regardless of the establishment of the trust account under 
     subsection (j)), and
       ``(F) the issue meets the requirements of subsection (h).
       ``(2) Treatment of changes in use.--For purposes of 
     paragraph (1)(A), the proceeds of an issue shall not be 
     treated as used for a qualified project to the extent that 
     the issuer takes any action within its control which causes 
     such proceeds not to be used for a qualified project. The 
     Secretary shall prescribe regulations specifying remedial 
     actions that may be taken (including conditions to taking 
     such remedial actions) to prevent an action described in the 
     preceding sentence from causing a bond to fail to be a 
     qualified Amtrak bond.
       ``(3) State contribution requirement.--
       ``(A) In general.--For purposes of paragraph (1)(C)(ii), 
     the State contribution requirement of this paragraph is met 
     with respect to any qualified project if the National 
     Railroad Passenger Corporation has a written binding 
     commitment from 1 or more States to make matching 
     contributions not later than the date of issuance of the 
     issue of not less than 20 percent of the cost of the 
     qualified project.
       ``(B) Use of state matching contributions.--The matching 
     contributions described in subparagraph (A) with respect to 
     each qualified project shall be used--
       ``(i) as necessary to redeem bonds which are a part of the 
     issue with respect to such project, and
       ``(ii) in the case of any remaining amount, at the election 
     of the National Railroad Passenger Corporation and the 
     contributing State--

       ``(I) to fund a qualified project,
       ``(II) to redeem other qualified Amtrak bonds, or
       ``(III) for the purposes of subclauses (I) and (II).

       ``(C) State matching contributions may not include federal 
     funds.--For purposes of this paragraph, State matching 
     contributions shall not be derived, directly or indirectly, 
     from Federal funds, including any transfers from the Highway 
     Trust Fund under section 9503.
       ``(D) No state contribution requirement for certain 
     qualified projects.--With respect to any qualified project 
     described in paragraph (2)(B) or (4) of subsection (e), the 
     State contribution requirement of this paragraph is zero.
       ``(4) Qualified project.--
       ``(A) In general.--The term `qualified project' means--
       ``(i) the acquisition, financing, or refinancing of 
     equipment, rolling stock, and other capital improvements for 
     the northeast rail corridor between Washington, D.C. and 
     Boston, Massachusetts (including the project described in 
     subsection (e)(2)(B)),
       ``(ii) the acquisition, financing, or refinancing of 
     equipment, rolling stock, and other capital improvements for 
     the improvement of train speeds or safety (or both) on the 
     high-speed rail corridors designated under section 104(d)(2) 
     of title 23, United States Code, and
       ``(iii) the acquisition, financing, or refinancing of 
     equipment, rolling stock, and other capital improvements for 
     other intercity passenger rail corridors, including station 
     rehabilitation or construction, track or signal improvements, 
     or the elimination of grade crossings.
       ``(B) Refinancing rules.--For purposes of subparagraph (A), 
     a refinancing shall constitute a qualified project only if 
     the indebtedness being refinanced (including any obligation 
     directly or indirectly refinanced by such indebtedness) was 
     originally incurred by the National Railroad Passenger 
     Corporation--
       ``(i) after the date of the enactment of this section,
       ``(ii) for a term of not more than 3 years,
       ``(iii) to finance or acquire capital improvements 
     described in subparagraph (A), and
       ``(iv) in anticipation of being refinanced with proceeds of 
     a qualified Amtrak bond.
       ``(e) Limitations on Amount of Bonds Designated.--
       ``(1) In general.--There is a qualified Amtrak bond 
     limitation for each fiscal year. Such limitation is--
       ``(A) $1,000,000,000 for each of the fiscal years 2001 
     through 2010, and
       ``(B) except as provided in paragraph (5), zero after 
     fiscal year 2010.
       ``(2) Bonds for rail corridors.--
       ``(A) In general.--Not more than $3,000,000,000 of the 
     limitation under paragraph (1) may be designated for any 1 
     rail corridor described in clause (i) or (ii) of subsection 
     (d)(4)(A).
       ``(B) Specific qualified project allocation.--Of the amount 
     described in subparagraph (A), the Secretary of 
     Transportation shall allocate $92,000,000 for the acquisition 
     and installation of platform facilities, performance of 
     railroad force account work necessary to complete 
     improvements below street grade, and any other necessary 
     improvements related to construction at the railroad station 
     at the James A.

[[Page H10950]]

     Farley Post Office Building in New York City, New York.
       ``(3) Bonds for other projects.--Not more than 10 percent 
     of the limitation under paragraph (1) for any fiscal year may 
     be allocated to qualified projects described in subsection 
     (d)(4)(A)(iii).
       ``(4) Bonds for alaska railroad.--The Secretary of 
     Transportation may allocate to the Alaska Railroad a portion 
     of the qualified Amtrak limitation for any fiscal year in 
     order to allow the Alaska Railroad to issue bonds which meet 
     the requirements of this section for use in financing any 
     project described in subsection (d)(4)(A)(iii). For purposes 
     of this section, the Alaska Railroad shall be treated in the 
     same manner as the National Railroad Passenger Corporation.
       ``(5) Carryover of unused limitation.--If for any fiscal 
     year--
       ``(A) the limitation amount under paragraph (1), exceeds
       ``(B) the amount of bonds issued during such year which are 
     designated under subsection (d)(1)(C)(i),

     the limitation amount under paragraph (1) for the following 
     fiscal year (through fiscal year 2014) shall be increased by 
     the amount of such excess.
       ``(6) Preference for greater state participation.--In 
     selecting qualified projects for allocation of the qualified 
     Amtrak bond limitation under this subsection, the Secretary 
     of Transportation shall give preference to any project with a 
     State matching contribution rate exceeding 20 percent.
       ``(f) Other Definitions.--For purposes of this subpart--
       ``(1) Bond.--The term `bond' includes any obligation.
       ``(2) Credit allowance date.--The term `credit allowance 
     date' means--
       ``(A) March 15,
       ``(B) June 15,
       ``(C) September 15, and
       ``(D) December 15.

     Such term includes the last day on which the bond is 
     outstanding.
       ``(3) State.--The term `State' means the several States and 
     the District of Columbia, and any subdivision thereof.
       ``(4) Program.--The term `program' means 1 or more projects 
     implemented over 1 or more years to support the development 
     of intercity passenger rail corridors.
       ``(g) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section (determined without regard to subsection 
     (c)) and the amount so included shall be treated as interest 
     income.
       ``(h) Special Rules Relating to Arbitrage.--
       ``(1) In general.--Subject to paragraph (2), an issue shall 
     be treated as meeting the requirements of this subsection if 
     as of the date of issuance, the issuer reasonably expects--
       ``(A) to spend at least 95 percent of the proceeds of the 
     issue for 1 or more qualified projects within the 3-year 
     period beginning on such date,
       ``(B) to incur a binding commitment with a third party to 
     spend at least 10 percent of the proceeds of the issue, or to 
     commence construction, with respect to such projects within 
     the 6-month period beginning on such date, and
       ``(C) to proceed with due diligence to complete such 
     projects and to spend the proceeds of the issue.
       ``(2) Rules regarding continuing compliance after 3-year 
     determination.--If at least 95 percent of the proceeds of the 
     issue is not expended for 1 or more qualified projects within 
     the 3-year period beginning on the date of issuance, an issue 
     shall be treated as continuing to meet the requirements of 
     this subsection if either--
       ``(A) the issuer uses all unspent proceeds of the issue to 
     redeem bonds of the issue within 90 days after the end of 
     such 3-year period, or
       ``(B) the following requirements are met:
       ``(i) The issuer spends at least 75 percent of the proceeds 
     of the issue for 1 or more qualified projects within the 3-
     year period beginning on the date of issuance.
       ``(ii) The issuer has proceeded with due diligence to spend 
     the proceeds of the issue within such 3-year period and 
     continues to proceed with due diligence to spend such 
     proceeds.
       ``(iii) The issuer pays to the Federal Government any 
     earnings on the proceeds of the issue that accrue after the 
     end of such 3-year period.
       ``(iv) Either--

       ``(I) at least 95 percent of the proceeds of the issue is 
     expended for 1 or more qualified projects within the 4-year 
     period beginning on the date of issuance, or
       ``(II) the issuer uses all unspent proceeds of the issue to 
     redeem bonds of the issue within 90 days after the end of 
     such 4-year period.

       ``(i) Recapture of Portion of Credit Where Cessation of 
     Compliance.--
       ``(1) In general.--If any bond which when issued purported 
     to be a qualified Amtrak bond ceases to be a qualified Amtrak 
     bond, the issuer shall pay to the United States (at the time 
     required by the Secretary) an amount equal to the sum of--
       ``(A) the aggregate of the credits allowable under this 
     section with respect to such bond (determined without regard 
     to subsection (c)) for taxable years ending during the 
     calendar year in which such cessation occurs and the 2 
     preceding calendar years, and
       ``(B) interest at the underpayment rate under section 6621 
     on the amount determined under subparagraph (A) for each 
     calendar year for the period beginning on the first day of 
     such calendar year.
       ``(2) Failure to pay.--If the issuer fails to timely pay 
     the amount required by paragraph (1) with respect to such 
     bond, the tax imposed by this chapter on each holder of any 
     such bond which is part of such issue shall be increased (for 
     the taxable year of the holder in which such cessation 
     occurs) by the aggregate decrease in the credits allowed 
     under this section to such holder for taxable years beginning 
     in such 3 calendar years which would have resulted solely 
     from denying any credit under this section with respect to 
     such issue for such taxable years.
       ``(3) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (2) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     paragraph (2) shall not be treated as a tax imposed by this 
     chapter for purposes of determining --
       ``(i) the amount of any credit allowable under this part, 
     or
       ``(ii) the amount of the tax imposed by section 55.
       ``(j) Use of Trust Account.--
       ``(1) In general.--The amount of any matching contribution 
     with respect to a qualified project described in subsection 
     (d)(3)(B)(i) or (d)(3)(B)(ii)(II) and the temporary period 
     investment earnings on proceeds of the issue with respect to 
     such project, and any earnings thereon, shall be held in a 
     trust account by a trustee independent of the National 
     Railroad Passenger Corporation to be used to the extent 
     necessary to redeem bonds which are part of such issue.
       ``(2) Use of remaining funds in trust account.--Upon the 
     repayment of the principal of all qualified Amtrak bonds 
     issued under this section, any remaining funds in the trust 
     account described in paragraph (1) shall be available--
       ``(A) to the trustee described in paragraph (1), to meet 
     any remaining obligations under any guaranteed investment 
     contract used to secure earnings sufficient to repay the 
     principal of such bonds, and
       ``(B) to the issuer, for any qualified project.
       ``(k) Other Special Rules.--
       ``(1) Partnership; s corporation; and other pass-thru 
     entities.--Under regulations prescribed by the Secretary, in 
     the case of a partnership, trust, S corporation, or other 
     pass-thru entity, rules similar to the rules of section 41(g) 
     shall apply with respect to the credit allowable under 
     subsection (a).
       ``(2) Bonds held by regulated investment companies.--If any 
     qualified Amtrak bond is held by a regulated investment 
     company, the credit determined under subsection (a) shall be 
     allowed to shareholders of such company under procedures 
     prescribed by the Secretary.
       ``(3) Credits may be stripped.--Under regulations 
     prescribed by the Secretary--
       ``(A) In general.--There may be a separation (including at 
     issuance) of the ownership of a qualified Amtrak bond and the 
     entitlement to the credit under this section with respect to 
     such bond. In case of any such separation, the credit under 
     this section shall be allowed to the person who on the credit 
     allowance date holds the instrument evidencing the 
     entitlement to the credit and not to the holder of the bond.
       ``(B) Certain rules to apply.--In the case of a separation 
     described in subparagraph (A), the rules of section 1286 
     shall apply to the qualified Amtrak bond as if it were a 
     stripped bond and to the credit under this section as if it 
     were a stripped coupon.
       ``(4) Treatment for estimated tax purposes.--Solely for 
     purposes of sections 6654 and 6655, the credit allowed by 
     this section to a taxpayer by reason of holding a qualified 
     Amtrak bond on a credit allowance date shall be treated as if 
     it were a payment of estimated tax made by the taxpayer on 
     such date.
       ``(5) Credit may be transferred.--Nothing in any law or 
     rule of law shall be construed to limit the transferability 
     of the credit allowed by this section through sale and 
     repurchase agreements.
       ``(6) Reporting.--Issuers of qualified Amtrak bonds shall 
     submit reports similar to the reports required under section 
     149(e).''.
       (b) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest), as amended by 
     section 505(d), is amended by adding at the end the following 
     new paragraph:
       ``(9) Reporting of credit on qualified amtrak bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 54(g) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 54(f)(2)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A) of this paragraph, subsection 
     (b)(4) of this section shall be applied without regard to 
     subparagraphs (A), (H), (I), (J), (K), and (L)(i).
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''.
       (c) Clerical Amendments.--
       (1) The table of subparts for part IV of subchapter A of 
     chapter 1 is amended by adding at the end the following new 
     item:

``Subpart H. Nonrefundable Credit for Holders of Qualified Amtrak 
              Bonds.''.

       (2) Section 6401(b)(1) is amended by striking ``and G'' and 
     inserting ``G, and H''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after September 30, 2000.

[[Page H10951]]

       (e) Multi-Year Capital Spending Plan and Oversight.--
       (1) Amtrak capital spending plan.--
       (A) In general.--The National Railroad Passenger 
     Corporation shall annually submit to the President and 
     Congress a multi-year capital spending plan, as approved by 
     the Board of Directors of the Corporation.
       (B) Contents of plan.--Such plan shall identify the capital 
     investment needs of the Corporation over a period of not less 
     than 5 years and the funding sources available to finance 
     such needs and shall prioritize such needs according to 
     corporate goals and strategies.
       (C) Initial submission date.--The first plan shall be 
     submitted before the issuance of any qualified Amtrak bonds 
     by the National Railroad Passenger Corporation pursuant to 
     section 54 of the Internal Revenue Code of 1986 (as added by 
     this section).
       (2) Oversight of amtrak trust account and qualified 
     projects.--
       (A) Trust account oversight.--The Secretary of the Treasury 
     shall annually report to Congress as to whether the amount 
     deposited in the trust account established by the National 
     Railroad Passenger Corporation under section 54(i) of such 
     Code (as so added) is sufficient to fully repay at maturity 
     the principal of any outstanding qualified Amtrak bonds 
     issued pursuant to section 54 of such Code (as so added), 
     together with amounts expected to be deposited into such 
     account, as certified by the National Railroad Passenger 
     Corporation in accordance with procedures prescribed by the 
     Secretary of the Treasury.
       (B) Project oversight.--The National Railroad Passenger 
     Corporation shall contract for an annual independent 
     assessment of the costs and benefits of the qualified 
     projects financed by such qualified Amtrak bonds, including 
     an assessment of the investment evaluation process of the 
     Corporation. The annual assessment shall be included in the 
     plan submitted under paragraph (1).
       (C) Oversight funding.--Not more than 0.5 percent of the 
     amounts made available through the issuance of qualified 
     Amtrak bonds by the National Railroad Passenger Corporation 
     pursuant to section 54 of such Code (as so added) may be used 
     by the National Railroad Passenger Corporation for 
     assessments described in subparagraph (B).
       (f) Protection of Highway Trust Fund.--
       (1) Certification by the secretary of the treasury.--The 
     issuance of any qualified Amtrak bonds by the National 
     Railroad Passenger Corporation or the Alaska Railroad 
     pursuant to section 54 of the Internal Revenue Code of 1986 
     (as added by this section) is conditioned on certification by 
     the Secretary of the Treasury, after consultation with the 
     Secretary of Transportation, within 30 days of a request by 
     the issuer, that with respect to funds of the Highway Trust 
     Fund described under paragraph (2), the issuer either--
       (A) has not received such funds during fiscal years 
     commencing with fiscal year 2001 and ending before the fiscal 
     year the bonds are issued, or
       (B) has repaid to the Highway Trust Fund any such funds 
     which were received during such fiscal years.
       (2) Applicability.--This subsection shall apply to funds 
     received directly, or indirectly from a State or local 
     transit authority, from the Highway Trust Fund established 
     under section 9503 of the Internal Revenue Code of 1986, 
     except for funds authorized to be expended under section 
     9503(c) of such Code, as in effect on the date of the 
     enactment of this Act.
       (3) No retroactive effect.--Nothing in this subsection 
     shall adversely affect the entitlement of the holders of 
     qualified Amtrak bonds to the tax credit allowed pursuant 
     to section 54 of the Internal Revenue Code of 1986 (as so 
     added) or to repayment of principal upon maturity.

     SEC. 714. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by inserting after section 468B the 
     following new section:

     ``SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGEMENT 
                   ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible farming business or commercial 
     fishing, there shall be allowed as a deduction for any 
     taxable year the amount paid in cash by the taxpayer during 
     the taxable year to a Farm, Fishing, and Ranch Risk 
     Management Account (hereinafter referred to as the `FFARRM 
     Account').
       ``(b) Limitation.--
       ``(1) Contributions.--The amount which a taxpayer may pay 
     into the FFARRM Account for any taxable year shall not exceed 
     20 percent of so much of the taxable income of the taxpayer 
     (determined without regard to this section) which is 
     attributable (determined in the manner applicable under 
     section 1301) to any eligible farming business or commercial 
     fishing.
       ``(2) Distributions.--Distributions from a FFARRM Account 
     may not be used to purchase, lease, or finance any new 
     fishing vessel, add capacity to any fishery, or otherwise 
     contribute to the overcapitalization of any fishery. The 
     Secretary of Commerce shall implement regulations to enforce 
     this paragraph.
       ``(c) Eligible Businesses.--For purposes of this section--
       ``(1) Eligible farming business.--The term `eligible 
     farming business' means any farming business (as defined in 
     section 263A(e)(4)) which is not a passive activity (within 
     the meaning of section 469(c)) of the taxpayer.
       ``(2) Commercial fishing.--The term `commercial fishing' 
     has the meaning given such term by section (3) of the 
     Magnuson-Stevens Fishery Conservation and Management Act (16 
     U.S.C. 1802) but only if such fishing is not a passive 
     activity (within the meaning of section 469(c)) of the 
     taxpayer.
       ``(d) FFARRM Account.--For purposes of this section--
       ``(1) In general.--The term `FFARRM Account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of the taxpayer, but only if the written governing 
     instrument creating the trust meets the following 
     requirements:
       ``(A) No contribution will be accepted for any taxable year 
     in excess of the amount allowed as a deduction under 
     subsection (a) for such year.
       ``(B) The trustee is a bank (as defined in section 408(n)) 
     or another person who demonstrates to the satisfaction of the 
     Secretary that the manner in which such person will 
     administer the trust will be consistent with the requirements 
     of this section.
       ``(C) The assets of the trust consist entirely of cash or 
     of obligations which have adequate stated interest (as 
     defined in section 1274(c)(2)) and which pay such interest 
     not less often than annually.
       ``(D) All income of the trust is distributed currently to 
     the grantor.
       ``(E) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(2) Account taxed as grantor trust.--The grantor of a 
     FFARRM Account shall be treated for purposes of this title as 
     the owner of such Account and shall be subject to tax thereon 
     in accordance with subpart E of part I of subchapter J 
     of this chapter (relating to grantors and others treated 
     as substantial owners).
       ``(e) Inclusion of Amounts Distributed.--
       ``(1) In general.--Except as provided in paragraph (2), 
     there shall be includible in the gross income of the taxpayer 
     for any taxable year--
       ``(A) any amount distributed from a FFARRM Account of the 
     taxpayer during such taxable year, and
       ``(B) any deemed distribution under--
       ``(i) subsection (f )(1) (relating to deposits not 
     distributed within 5 years),
       ``(ii) subsection (f )(2) (relating to cessation in 
     eligible farming business), and
       ``(iii) subparagraph (B) or (C) of subsection (f )(3) 
     (relating to prohibited transactions and pledging account as 
     security).
       ``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
       ``(A) any distribution to the extent attributable to income 
     of the Account, and
       ``(B) the distribution of any contribution paid during a 
     taxable year to a FFARRM Account to the extent that such 
     contribution exceeds the limitation applicable under 
     subsection (b) if requirements similar to the requirements of 
     section 408(d)(4) are met.

     For purposes of subparagraph (A), distributions shall be 
     treated as first attributable to income and then to other 
     amounts.
       ``(f ) Special Rules.--
       ``(1) Tax on deposits in account which are not distributed 
     within 5 years.--
       ``(A) In general.--If, at the close of any taxable year, 
     there is a nonqualified balance in any FFARRM Account--
       ``(i) there shall be deemed distributed from such Account 
     during such taxable year an amount equal to such balance, and
       ``(ii) the taxpayer's tax imposed by this chapter for such 
     taxable year shall be increased by 10 percent of such deemed 
     distribution.

     The preceding sentence shall not apply if an amount equal to 
     such nonqualified balance is distributed from such Account to 
     the taxpayer before the due date (including extensions) for 
     filing the return of tax imposed by this chapter for such 
     year (or, if earlier, the date the taxpayer files such return 
     for such year).
       ``(B) Nonqualified balance.--For purposes of subparagraph 
     (A), the term `nonqualified balance' means any balance in the 
     Account on the last day of the taxable year which is 
     attributable to amounts deposited in such Account before the 
     4th preceding taxable year.
       ``(C) Ordering rule.--For purposes of this paragraph, 
     distributions from a FFARRM Account (other than distributions 
     of current income) shall be treated as made from deposits in 
     the order in which such deposits were made, beginning with 
     the earliest deposits.
       ``(2) Cessation in eligible business.--At the close of the 
     first disqualification period after a period for which the 
     taxpayer was engaged in an eligible farming business or 
     commercial fishing, there shall be deemed distributed from 
     the FFARRM Account of the taxpayer an amount equal to the 
     balance in such Account (if any) at the close of such 
     disqualification period. For purposes of the preceding 
     sentence, the term `disqualification period' means any period 
     of 2 consecutive taxable years for which the taxpayer is not 
     engaged in an eligible farming business or commercial 
     fishing.
       ``(3) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 220(f )(8) (relating to treatment on death).
       ``(B) Section 408(e)(2) (relating to loss of exemption of 
     account where individual engages in prohibited transaction).
       ``(C) Section 408(e)(4) (relating to effect of pledging 
     account as security).
       ``(D) Section 408(g) (relating to community property laws).
       ``(E) Section 408(h) (relating to custodial accounts).
       ``(4) Time when payments deemed made.--For purposes of this 
     section, a taxpayer shall be deemed to have made a payment to 
     a FFARRM Account on the last day of a taxable year if such 
     payment is made on account of such taxable year and is made 
     on or before the due date (without regard to extensions) for 
     filing the return of tax for such taxable year.

[[Page H10952]]

       ``(5) Individual.--For purposes of this section, the term 
     `individual' shall not include an estate or trust.
       ``(6) Deduction not allowed for self-employment tax.--The 
     deduction allowable by reason of subsection (a) shall not be 
     taken into account in determining an individual's net 
     earnings from self-employment (within the meaning of section 
     1402(a)) for purposes of chapter 2.
       ``(g) Reports.--The trustee of a FFARRM Account shall make 
     such reports regarding such Account to the Secretary and to 
     the person for whose benefit the Account is maintained with 
     respect to contributions, distributions, and such other 
     matters as the Secretary may require under regulations. The 
     reports required by this subsection shall be filed at such 
     time and in such manner and furnished to such persons at such 
     time and in such manner as may be required by such 
     regulations.''.
       (b) Tax on Excess Contributions.--
       (1) Subsection (a) of section 4973 (relating to tax on 
     excess contributions to certain tax-favored accounts and 
     annuities) is amended by striking ``or'' at the end of 
     paragraph (3), by redesignating paragraph (4) as paragraph 
     (5), and by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) a FFARRM Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(g) Excess Contributions to FFARRM Accounts.--For 
     purposes of this section, in the case of a FFARRM Account 
     (within the meaning of section 468C(d)), the term `excess 
     contributions' means the amount by which the amount 
     contributed for the taxable year to the Account exceeds the 
     amount which may be contributed to the Account under section 
     468C(b) for such taxable year. For purposes of this 
     subsection, any contribution which is distributed out of the 
     FFARRM Account in a distribution to which section 
     468C(e)(2)(B) applies shall be treated as an amount not 
     contributed.''.
       (3) The section heading for section 4973 is amended to read 
     as follows:

     ``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, 
                   ANNUITIES, ETC.''.

       (4) The table of sections for chapter 43 is amended by 
     striking the item relating to section 4973 and inserting the 
     following new item:

``Sec. 4973. Excess contributions to certain accounts, annuities, 
              etc.''.

       (c) Tax on Prohibited Transactions.--
       (1) Subsection (c) of section 4975 (relating to tax on 
     prohibited transactions) is amended by adding at the end the 
     following new paragraph:
       ``(6) Special rule for ffarrm accounts.--A person for whose 
     benefit a FFARRM Account (within the meaning of section 
     468C(d)) is established shall be exempt from the tax imposed 
     by this section with respect to any transaction concerning 
     such account (which would otherwise be taxable under this 
     section) if, with respect to such transaction, the account 
     ceases to be a FFARRM Account by reason of the application of 
     section 468C(f )(3)(A) to such account.''.
       (2) Paragraph (1) of section 4975(e) is amended by 
     redesignating subparagraphs (E) and (F) as subparagraphs (F) 
     and (G), respectively, and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) a FFARRM Account described in section 468C(d),''.
       (d) Failure To Provide Reports on FFARRM Accounts.--
     Paragraph (2) of section 6693(a) (relating to failure to 
     provide reports on certain tax-favored accounts or annuities) 
     is amended by redesignating subparagraphs (C) and (D) as 
     subparagraphs (D) and (E), respectively, and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) section 468C(g) (relating to FFARRM Accounts),''.
       (e) Clerical Amendment.--The table of sections for subpart 
     C of part II of subchapter E of chapter 1 is amended by 
     inserting after the item relating to section 468B the 
     following new item:

``Sec. 468C. Farm, Fishing and Ranch Risk Management Accounts.''.

       (f ) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 715. EXTENSION OF ENHANCED DEDUCTION FOR CORPORATE 
                   DONATIONS OF COMPUTER TECHNOLOGY.

       (a) Expansion of Computer Technology Donations to Public 
     Libraries.--
       (1) In general.--Paragraph (6) of section 170(e) (relating 
     to special rule for contributions of computer technology and 
     equipment for elementary or secondary school purposes) is 
     amended by striking ``qualified elementary or secondary 
     educational contribution'' each place it occurs in the 
     headings and text and inserting ``qualified computer 
     contribution''.
       (2) Expansion of eligible donees.--Clause (i) of section 
     170(e)(6)(B) (relating to qualified elementary or secondary 
     educational contribution) is amended by striking ``or'' at 
     the end of subclause (I), by adding ``or'' at the end of 
     subclause (II), and by inserting after subclause (II) the 
     following new subclause:

       ``(III) a public library (within the meaning of section 
     213(2)(A) of the Library Services and Technology Act (20 
     U.S.C. 9122(2)(A)), as in effect on the date of the enactment 
     of the Community Renewal and New Markets Act of 2000, 
     established and maintained by an entity described in 
     subsection (c)(1),''.

       (3) Extension of donation period.--Clause (ii) of section 
     170(e)(6)(B) is amended by striking ``2 years'' and inserting 
     ``3 years''.
       (b) Conforming Amendments.--
       (1) Section 170(e)(6)(B)(iv) is amended by striking ``in 
     any grades of the K-12''.
       (2) The heading of paragraph (6) of section 170(e) is 
     amended by striking ``elementary or secondary school 
     purposes'' and inserting ``educational purposes''.
       (c) Extension of Deduction.--Section 170(e)(6)(F) (relating 
     to termination) is amended by striking ``December 31, 2000'' 
     and inserting ``December 31, 2003''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contributions made after December 31, 2000.

     SEC. 716. RELIEF FROM FEDERAL TAX LIABILITY ARISING WITH 
                   RESPECT TO CERTAIN CLAIMS AGAINST THE 
                   DEPARTMENT OF AGRICULTURE FOR DISCRIMINATION IN 
                   FARM CREDIT AND BENEFIT PROGRAMS.

       Notwithstanding any provision of the Internal Revenue Code 
     of 1986, in the case of a person who is certified to be a 
     member of the plaintiff class in the settlement of the 
     consolidated actions entitled ``Pigford, et al. v. 
     Glickman'', No. 97-1978 (D.D.C.) (PLF), and ``Brewington et 
     al. v. Glickman'', No. 98-1693 (D.D.C.) (PLF), gross income 
     for purposes of subtitle A of such Code shall not include--
       (1) any cash payment received before, on, or after the date 
     of the enactment of this Act by, or made on behalf of, a 
     person under such settlement, and
       (2) any amount which (but for this section) would be 
     includible in gross income by reason of the discharge of 
     indebtedness pursuant to such settlement.

     SEC. 717. EXPANSION OF CREDIT FOR ADOPTION EXPENSES.

       (a) Increase in Expenses Allowable for Adoption.--Paragraph 
     (1) of section 23(b) (relating to dollar limitation) is 
     amended to read as follows:
       ``(1) Dollar limitation.--
       ``(A) In general.--The aggregate amount of qualified 
     adoption expenses which may be taken into account under 
     subsection (a) for all taxable years with respect to the 
     adoption of a child by the taxpayer shall not exceed the 
     applicable amount.
       ``(B) Applicable amount.--For purposes of subparagraph 
     (A)--
       ``(i) Child with special needs.--In the case of a child 
     with special needs, the applicable amount for a taxable year 
     shall be the amount determined in accordance with the 
     following table:

    ``For taxable years                                  The applicable
      beginning in:                                        amount is:  
      2001..................................................$8,000 .

      2002.................................................$10,000 .

      2003 and thereafter..................................$12,000..

       ``(ii) Other children.--In the case of a child who is not a 
     child with special needs, the applicable amount for a taxable 
     year shall be the amount determined in accordance with the 
     following table:

    ``For taxable years                                  The applicable
      beginning in:                                        amount is:  
      2001......................................................$6,000 
      2002......................................................$7,000 
      2003......................................................$8,000 
      2004......................................................$9,000 
      2005 and thereafter...................................$10,000.''.

       (b) Increase in Income Limitation.--Clause (i) of section 
     23(b)(2)(A) (relating to income limitation) is amended by 
     striking ``$75,000'' and inserting ``$150,000''.
       (c) Extension of Sunset.--Subparagraph (B) of section 
     23(d)(2) (relating to eligible child) is amended by striking 
     ``2001'' and inserting ``2005''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 718. STUDY CONCERNING UNITED STATES INSURANCE COMPANIES 
                   WITH CERTAIN OFFSHORE REINSURANCE AFFILIATES.

       (a) Study.--The Secretary of the Treasury shall conduct a 
     study on the extent to which United States tax on investment 
     income of United States insurance companies is being avoided 
     through the use of affiliated corporations in Bermuda or 
     other offshore locations. In conducting such study, the 
     Secretary shall--
       (1) address issues concerning the application of current 
     United States tax law in preventing such avoidance,
       (2) examine changes to United States tax law which may be 
     needed to prevent such avoidance, and
       (3) make such recommendations as the Secretary considers 
     appropriate.
       (b) Submission of Study to Congress.--Not later than 
     December 31, 2001, the Secretary shall submit the study 
     conducted under subsection (a), together with recommendations 
     thereon, to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate.

     SEC. 719. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER 
                   FEDERAL UNEMPLOYMENT TAX ACT.

       (a) In General.--Section 3306(c)(7) (defining employment) 
     is amended--
       (1) by inserting ``or in the employ of an Indian tribe,'' 
     after ``service performed in the employ of a State, or any 
     political subdivision thereof,''; and
       (2) by inserting ``or Indian tribes'' after ``wholly owned 
     by one or more States or political subdivisions''.
       (b) Payments in Lieu of Contributions.--Section 3309 
     (relating to State law coverage of services performed for 
     nonprofit organizations or governmental entities) is 
     amended--
       (1) in subsection (a)(2) by inserting ``, including an 
     Indian tribe,'' after ``the State law shall provide that a 
     governmental entity'';
       (2) in subsection (b)(3)(B) by inserting ``, or of an 
     Indian tribe'' after ``of a State or political subdivision 
     thereof'';
       (3) in subsection (b)(3)(E) by inserting ``or tribal'' 
     after ``the State''; and
       (4) in subsection (b)(5) by inserting ``or of an Indian 
     tribe'' after ``an agency of a State or political subdivision 
     thereof''.

[[Page H10953]]

       (c) State Law Coverage.--Section 3309 (relating to State 
     law coverage of services performed for nonprofit 
     organizations or governmental entities) is amended by adding 
     at the end the following new subsection:
       ``(d) Election by Indian Tribe.--The State law shall 
     provide that an Indian tribe may make contributions for 
     employment as if the employment is within the meaning of 
     section 3306 or make payments in lieu of contributions under 
     this section, and shall provide that an Indian tribe may make 
     separate elections for itself and each subdivision, 
     subsidiary, or business enterprise wholly owned by such 
     Indian tribe. State law may require a tribe to post a payment 
     bond or take other reasonable measures to assure the making 
     of payments in lieu of contributions under this section. 
     Notwithstanding the requirements of section 3306(a)(6), if, 
     within 90 days of having received a notice of delinquency, a 
     tribe fails to make contributions, payments in lieu of 
     contributions, or payment of penalties or interest (at 
     amounts or rates comparable to those applied to all other 
     employers covered under the State law) assessed with respect 
     to such failure, or if the tribe fails to post a required 
     payment bond, then service for the tribe shall not be 
     excepted from employment under section 3306(c)(7) until any 
     such failure is corrected. This subsection shall apply to an 
     Indian tribe within the meaning of section 4(e) of the Indian 
     Self-Determination and Education Assistance Act (25 U.S.C. 
     450b(e)).''.
       (d) Definitions.--Section 3306 (relating to definitions) is 
     amended by adding at the end the following new subsection:
       ``(u) Indian Tribe.--For purposes of this chapter, the term 
     `Indian tribe' has the meaning given to such term by section 
     4(e) of the Indian Self-Determination and Education 
     Assistance Act (25 U.S.C. 450b(e)), and includes any 
     subdivision, subsidiary, or business enterprise wholly owned 
     by such an Indian tribe.''.
       (e) Effective Date; Transition Rule.--
       (1) Effective date.--The amendments made by this section 
     shall apply to service performed on or after the date of the 
     enactment of this Act.
       (2) Transition rule.--For purposes of the Federal 
     Unemployment Tax Act, service performed in the employ of an 
     Indian tribe (as defined in section 3306(u) of the Internal 
     Revenue Code of 1986 (as added by this section)) shall not be 
     treated as employment (within the meaning of section 3306 of 
     such Code) if--
       (A) it is service which is performed before the date of the 
     enactment of this Act and with respect to which the tax 
     imposed under the Federal Unemployment Tax Act has not been 
     paid, and
       (B) such Indian tribe reimburses a State unemployment fund 
     for unemployment benefits paid for service attributable to 
     such tribe for such period.

                   Subtitle C--Technical Corrections

     SEC. 721. AMENDMENTS RELATED TO TICKET TO WORK AND WORK 
                   INCENTIVES IMPROVEMENT ACT OF 1999.

       (a) Amendments Related to Section 502 of the Act.--
       (1) Section 280C(c)(1) is amended by striking ``or credit'' 
     after ``deduction'' each place it appears.
       (2) Section 30A is amended by redesignating subsections (f) 
     and (g) as subsections (g) and (h), respectively, and by 
     inserting after subsection (e) the following new subsection:
       ``(f) Denial of Double Benefit.--Any wages or other 
     expenses taken into account in determining the credit under 
     this section may not be taken into account in determining the 
     credit under section 41.''
       (b) Amendment Related to Section 545 of the Act.--Clause 
     (ii) of section 857(b)(7)(B) is amended to read as follows:
       ``(ii) Exception for certain amounts.--Clause (i) shall not 
     apply to amounts received directly or indirectly by a real 
     estate investment trust--

       ``(I) for services furnished or rendered by a taxable REIT 
     subsidiary that are described in paragraph (1)(B) of section 
     856(d), or
       ``(II) from a taxable REIT subsidiary that are described in 
     paragraph (7)(C)(ii) of such section.''

       (c) Clarification Related to Section 538 of the Act.--The 
     reference to section 332(b)(1) of the Internal Revenue Code 
     of 1986 in Treasury Regulation section 1.1502-34 shall be 
     deemed to include a reference to section 732(f) of such Code.
       (d) Effective Date.--Subsection (c) and the amendments made 
     by this section shall take effect as if included in the 
     provisions of the Ticket to Work and Work Incentives 
     Improvement Act of 1999 to which they relate.

     SEC. 722. AMENDMENTS RELATED TO TAX AND TRADE RELIEF 
                   EXTENSION ACT OF 1998.

       (a) Amendment Related to Section 1004(b) of the Act.--
     Subsection (d) of section 6104 is amended by adding at the 
     end the following new paragraph:
       ``(6) Application to nonexempt charitable trusts and 
     nonexempt private foundations.--The organizations referred to 
     in paragraphs (1) and (2) of section 6033(d) shall comply 
     with the requirements of this subsection relating to annual 
     returns filed under section 6033 in the same manner as the 
     organizations referred to in paragraph (1).''.
       (b) Amendment Related to Section 4003 of the Act.--
     Subsection (b) of section 4003 of the Tax and Trade Relief 
     Extension Act of 1998 is amended by inserting 
     ``(7)(A)(i)(II),'' after ``(5)(A)(ii)(I),''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the Tax 
     and Trade Relief Extension Act of 1998 to which they relate.

     SEC. 723. AMENDMENTS RELATED TO INTERNAL REVENUE SERVICE 
                   RESTRUCTURING AND REFORM ACT OF 1998.

       (a) Amendments Related to Innocent Spouse Relief.--
       (1) Election may be made any time after deficiency 
     asserted.--Subparagraph (B) of section 6015(c)(3) is amended 
     by striking ``shall be made'' and inserting ``may be made at 
     any time after a deficiency for such year is asserted but''.
       (2) Clarification regarding disallowance of refunds and 
     credits under section 6015(c).--
       (A) In general.--Section 6015 is amended by redesignating 
     subsection (g) as subsection (h) and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Credits and Refunds.--
       ``(1) In general.--Except as provided in paragraphs (2) and 
     (3), notwithstanding any other law or rule of law (other than 
     section 6511, 6512(b), 7121, or 7122), credit or refund shall 
     be allowed or made to the extent attributable to the 
     application of this section.
       ``(2) Res judicata.--In the case of any election under 
     subsection (b) or (c), if a decision of a court in any prior 
     proceeding for the same taxable year has become final, such 
     decision shall be conclusive except with respect to the 
     qualification of the individual for relief which was not an 
     issue in such proceeding. The exception contained in the 
     preceding sentence shall not apply if the court determines 
     that the individual participated meaningfully in such prior 
     proceeding.
       ``(3) Credit and refund not allowed under subsection (c).--
     No credit or refund shall be allowed as a result of an 
     election under subsection (c).''.
       (B) Conforming amendment.--Paragraph (3) of section 6015(e) 
     is amended to read as follows:
       ``(3) Limitation on tax court jurisdiction.--If a suit for 
     refund is begun by either individual filing the joint return 
     pursuant to section 6532--
       ``(A) the Tax Court shall lose jurisdiction of the 
     individual's action under this section to whatever extent 
     jurisdiction is acquired by the district court or the United 
     States Court of Federal Claims over the taxable years that 
     are the subject of the suit for refund, and
       ``(B) the court acquiring jurisdiction shall have 
     jurisdiction over the petition filed under this 
     subsection.''.
       (3) Clarifications regarding review by tax court.--
       (A) Paragraph (1) of section 6015(e) is amended in the 
     matter preceding subparagraph (A) by inserting after 
     ``individual'' the following: ``against whom a deficiency has 
     been asserted and''.
       (B) Subparagraph (A) of section 6015(e)(1) is amended to 
     read as follows:
       ``(A) In general.--In addition to any other remedy provided 
     by law, the individual may petition the Tax Court (and the 
     Tax Court shall have jurisdiction) to determine the 
     appropriate relief available to the individual under this 
     section if such petition is filed--
       ``(i) at any time after the earlier of--

       ``(I) the date the Secretary mails, by certified or 
     registered mail to the taxpayer's last known address, notice 
     of the Secretary's final determination of relief available to 
     the individual, or
       ``(II) the date which is 6 months after the date such 
     election is filed with the Secretary, and

       ``(ii) not later than the close of the 90th day after the 
     date described in clause (i)(I).''.
       (C) Subparagraph (B)(i) of section 6015(e)(1) is amended--
       (i) by striking ``until the expiration of the 90-day period 
     described in subparagraph (A)'' and inserting ``until the 
     close of the 90th day referred to in subparagraph (A)(ii)'', 
     and
       (ii) by inserting ``under subparagraph (A)'' after ``filed 
     with the Tax Court''.
       (D)(i) Subsection (e) of section 6015 is amended by adding 
     at the end the following new paragraph:
       ``(5) Waiver.--An individual who elects the application of 
     subsection (b) or (c) (and who agrees with the Secretary's 
     determination of relief) may waive in writing at any time the 
     restrictions in paragraph (1)(B) with respect to collection 
     of the outstanding assessment (whether or not a notice of the 
     Secretary's final determination of relief has been 
     mailed).''.
       (ii) Paragraph (2) of section 6015(e) is amended to read as 
     follows:
       ``(2) Suspension of running of period of limitations.--The 
     running of the period of limitations in section 6502 on the 
     collection of the assessment to which the petition under 
     paragraph (1)(A) relates shall be suspended--
       ``(A) for the period during which the Secretary is 
     prohibited by paragraph (1)(B) from collecting by levy or a 
     proceeding in court and for 60 days thereafter, and
       ``(B) if a waiver under paragraph (5) is made, from the 
     date the claim for relief was filed until 60 days after the 
     waiver is filed with the Secretary.''.
       (b) Amendments Related to Procedure and Administration.--
       (1) Disputes involving $50,000 or less.--Section 7463 is 
     amended by adding at the end the following new subsection:
       ``(f) Additional Cases in Which Proceedings May Be 
     Conducted Under This Section.--At the option of the taxpayer 
     concurred in by the Tax Court or a division thereof before 
     the hearing of the case, proceedings may be conducted under 
     this section (in the same manner as a case described in 
     subsection (a)) in the case of--
       ``(1) a petition to the Tax Court under section 6015(e) in 
     which the amount of relief sought does not exceed $50,000, 
     and
       ``(2) an appeal under section 6330(d)(1)(A) to the Tax 
     Court of a determination in which the unpaid tax does not 
     exceed $50,000.''.
       (2) Authority to enjoin collection actions.--
       (A) Section 6330(e)(1) is amended by adding at the end the 
     following: ``Notwithstanding the

[[Page H10954]]

     provisions of section 7421(a), the beginning of a levy or 
     proceeding during the time the suspension under this 
     paragraph is in force may be enjoined by a proceeding in the 
     proper court, including the Tax Court. The Tax Court shall 
     have no jurisdiction under this paragraph to enjoin any 
     action or proceeding unless a timely appeal has been filed 
     under subsection (d)(1) and then only in respect of the 
     unpaid tax or proposed levy to which the determination being 
     appealed relates.''.
       (B) Section 7421(a) is amended by inserting ``6330(e)(1),'' 
     after ``6246(b),''.
       (3) Clarification.--Paragraph (3) of section 6331(k) is 
     amended by striking ``(3), (4), and (5)'' and inserting ``(3) 
     and (4)''.
       (c) Amendment Related to Section 1103 of the Act.--
     Paragraph (6) of section 6103(k) is amended--
       (1) by inserting ``and an officer or employee of the Office 
     of Treasury Inspector General for Tax Administration'' after 
     ``internal revenue officer or employee'', and
       (2) by striking ``internal revenue'' in the heading and 
     inserting ``certain''.
       (d) Amendment Related to Section 3401 of the Act.--Section 
     6330(d)(1)(A) is amended by striking ``to hear'' and 
     inserting ``with respect to''.
       (e) Amendment Related to Section 3509 of the Act.--
     Subparagraph (A) of section 6110(g)(5) is amended by 
     inserting ``, any Chief Counsel advice,'' after ``technical 
     advice memorandum''.
       (f) Effective Dates.--The amendments made by subsections 
     (a) and (b) shall take effect on the date of the enactment of 
     this Act. The amendments made by subsections (c), (d), and 
     (e) shall take effect as if included in the provisions of the 
     Internal Revenue Service Restructuring and Reform Act of 1998 
     to which they relate.

     SEC. 724. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

       (a) Amendment Related to Section 101 of the Act.--Paragraph 
     (4) of section 6211(b) is amended by striking ``sections 32 
     and 34'' and inserting ``sections 24(d), 32, and 34''.
       (b) Amendment Related to Section 302 of the Act.--The last 
     sentence of section 3405(e)(1)(B) is amended by inserting 
     ``(other than a Roth IRA)'' after ``individual retirement 
     plan''.
       (c) Amendment to Section 311 of the Act.--Paragraph (3) of 
     section 311(e) of the Taxpayer Relief Act of 1997 (relating 
     to election to recognize gain on assets held on January 1, 
     2001) is amended by adding at the end the following new 
     sentence: ``Such an election shall not apply to any asset 
     which is disposed of (in a transaction in which gain or 
     loss is recognized in whole or in part) before the close 
     of the 1-year period beginning on the date that the asset 
     would have been treated as sold under such election.''
       (d) Amendment Related to Section 402 of the Act.--The flush 
     sentence at the end of clause (ii) of section 56(a)(1)(A) is 
     amended by inserting before ``or to any other property'' the 
     following: ``(and the straight line method shall be used for 
     such 1250 property)''.
       (e) Amendments Related to Section  1072 of the Act.--
       (1) Clause (ii) of section 415(c)(3)(D) and subparagraph 
     (B) of section 403(b)(3) are each amended by striking 
     ``section 125 or'' and inserting ``section 125, 132(f)(4), 
     or''.
       (2) Paragraph (2) of section 414(s) is amended by striking 
     ``section 125, 402(e)(3)'' and inserting ``section 125, 
     132(f)(4), 402(e)(3)''.
       (f) Amendment Related to Section  1454 of the Act.--
     Subsection (a) of section 7436 is amended by inserting before 
     the period at the end of the first sentence ``and the proper 
     amount of employment tax under such determination''.
       (g) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Taxpayer Relief of 1997 to which they relate.

     SEC. 725. AMENDMENTS RELATED TO BALANCED BUDGET ACT OF 1997.

       (a) Amendments Related to Section  9302 of the Act.--
       (1) Paragraph (1) of section 9302(j) of the Balanced Budget 
     Act of 1997 is amended by striking ``tobacco products and 
     cigarette papers and tubes'' and inserting ``cigarettes''.
       (2)(A) Subsection (h) of section 5702 is amended to read as 
     follows:
       ``(h) Manufacturer of Cigarette Papers and Tubes.--
     `Manufacturer of cigarette papers and tubes' means any person 
     who manufactures cigarette paper, or makes up cigarette paper 
     into tubes, except for his own personal use or consumption.''
       (B) Section 5702, as amended by subparagraph (A), is 
     amended by striking subsection (f) and by redesignating 
     subsections (g) through (p) as subsections (f) through (o), 
     respectively.
       (3) Subsection (c) of section 5761 is amended by adding at 
     the end the following: ``This subsection and section 5754 
     shall not apply to any person who relands or receives tobacco 
     products in the quantity allowed entry free of tax and duty 
     under chapter 98 of the Harmonized Tariff Schedule of the 
     United States, and such person may voluntarily relinquish to 
     the Secretary at the time of entry any excess of such 
     quantity without incurring the penalty under this subsection. 
     No quantity of tobacco products other than the quantity 
     referred to in the preceding sentence may be relanded or 
     received as a personal use quantity.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in section 9302 of the 
     Balanced Budget Act of 1997.

     SEC. 726. AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                   ACT OF 1996.

       (a) Amendment Related to Section 1201 of the Act.--
     Subparagraph (B) of section 51(d)(2) is amended--
       (1) by striking ``plan approved'' and inserting ``program 
     funded'', and
       (2) by striking ``(relating to assistance for needy 
     families with minor children)''.
       (b) Amendment Related to Section 1302 of the Act.--Clause 
     (i) of section 1361(e)(1)(A) is amended by striking ``or'' 
     before ``(III)'' and by adding at the end the following: ``or 
     (IV) an organization described in section 170(c)(1) which 
     holds a contingent interest in such trust and is not a 
     potential current beneficiary,''.
       (c) Amendment Related to Section 1401 of the Act.--Clause 
     (ii) of section 401(k)(10)(B) is amended by adding at the end 
     the following new sentence: ``Such term includes a 
     distribution of an annuity contract from--

       ``(I) a trust which forms a part of a plan described in 
     section 401(a) and which is exempt from tax under section 
     501(a), or
       ``(II) an annuity plan described in section 403(a).''.

       (d) Amendment Related to Section 1427 of the Act.--Clause 
     (ii) of section 219(c)(1)(B) is amended by striking ``and'' 
     at the end of subclause (I), by redesignating subclause (II) 
     as subclause (III), and by inserting after subclause (I) the 
     following new subclause:

       ``(II) the amount of any designated nondeductible 
     contribution (as defined in section 408(o)) on behalf of such 
     spouse for such taxable year, and''.

       (e) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Small Business Job Protection Act of 1996 to which they 
     relate.

     SEC. 727. AMENDMENT RELATED TO REVENUE RECONCILIATION ACT OF 
                   1990.

       (a) Amendment Related to Section 11511 of the Act.--
     Subparagraph (C) of section 43(c)(1) is amended--
       (1) by inserting ``(as defined in section 193(b))'' after 
     ``expenses'', and
       (2) by striking ``under section 193''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in section 11511 of the 
     Revenue Reconciliation Act of 1990.

     SEC. 728. OTHER TECHNICAL CORRECTIONS.

       (a) Modified Endowment Contracts.--
       (1) Paragraph (2) of section 7702A(a) is amended by 
     inserting ``or this paragraph'' before the period.
       (2) Clause (ii) of section 7702A(c)(3)(A) is amended by 
     striking ``under the contract'' and inserting ``under the old 
     contract''.
       (3) The amendments made by this subsection shall take 
     effect as if included in the amendments made by section 5012 
     of the Technical and Miscellaneous Revenue Act of 1988.
       (b) Affiliated Corporations in Context of Worthless 
     Securities.--
       (1) Subparagraph (A) of section 165(g)(3) is amended to 
     read as follows:
       ``(A) the taxpayer owns directly stock in such corporation 
     meeting the requirements of section 1504(a)(2), and''.
       (2) Paragraph (3) of section 165(g) is amended by striking 
     the last sentence.
       (3) The amendments made by this subsection shall apply to 
     taxable years beginning after December 31, 1984.
       (c) Certain Annuities Issued by Tax-Exempt Organizations 
     Not Treated as Debt Instruments under Original Issue Discount 
     Rules.--
       (1) Clause (ii) of section 1275(a)(1)(B) is amended by 
     striking ``subchapter L'' and inserting ``subchapter L (or by 
     an entity described in section 501(c) and exempt from tax 
     under section 501(a) which would be subject to tax under 
     subchapter L were it not so exempt)''.
       (2) The amendment made by this subsection shall take effect 
     as if included in the amendments made by section 41 of the 
     Tax Reform Act of 1984.
       (d) Tentative Carryback Adjustments of Losses From Section 
     1256 Contracts.--
       (1) Subsection (a) of section 6411 is amended by striking 
     ``section 1212(a)(1)'' and inserting ``subsection (a)(1) or 
     (c) of section 1212''.
       (2) The amendment made by paragraph (1) shall take effect 
     as if included in the amendments made by section 504 of the 
     Economic Recovery Tax Act of 1981.
       (e) Correction of Calculation of Amounts to be Deposited in 
     Highway Trust Fund.--
       (1) Subsection (b) of section 9503 is amended by striking 
     paragraph (5) and redesignating paragraph (6) as paragraph 
     (5).
       (2) The amendment made by paragraph (1) shall apply with 
     respect to taxes received in the Treasury after the date of 
     the enactment of this Act.
       (f) Expenditures From Vaccine Injury Compensation Trust 
     Fund.--Section 9510(c)(1)(A) is amended by striking 
     ``December 31, 1999'' and inserting ``October 18, 2000''.

     SEC. 729. CLERICAL CHANGES.

       (1) Clause (i) of section 45(d)(7)(A) is amended by 
     striking ``paragraph (3)(A)'' and inserting ``subsection 
     (c)(3)(A)''.
       (2) Subsection (f) of section 67 is amended by striking 
     ``the last sentence'' and inserting ``the second sentence''.
       (3) The heading for paragraph (5) of section 408(d) is 
     amended to read as follows:
       ``(5) Distributions of excess contributions after due date 
     for taxable year and certain excess rollover contributions.--
     ''.
       (4) Paragraph (3) of section 475(g) is amended by striking 
     ``267(b) of'' and inserting ``267(b) or''.
       (5) The heading for subparagraph (B) of section 529(e)(3) 
     is amended by striking ``under guaranteed plans''.
       (6) Clause (iii) of section 530(d)(4)(B) is amended by 
     striking ``; or'' at the end and inserting ``, or''.
       (7) Paragraphs (1)(C) and (2)(C) of section 664(d) are each 
     amended by striking the period after ``subsection (g))''.

[[Page H10955]]

       (8)(A) Subsection (e) of section 678 is amended by striking 
     ``an electing small business corporation'' and inserting ``an 
     S corporation''.
       (B) Clause (v) of section 6103(e)(1)(D) is amended to read 
     as follows:
       ``(v) if the corporation was an S corporation, any person 
     who was a shareholder during any part of the period covered 
     by such return during which an election under section 1362(a) 
     was in effect, or''.
       (9) Paragraph (7) of section 856(c) is amended by striking 
     ``paragraph (4)(B)(ii)(III)'' and inserting ``paragraph 
     (4)(B)(iii)(III)''
       (10) Subparagraph (A) of section 856(l)(4) is amended by 
     striking ``paragraph (9)(D)(ii)'' and inserting ``subsection 
     (d)(9)(D)(ii)''.
       (11) Subparagraph (B) of section 871(f)(2) is amended by 
     striking ``19 U.S.C.'' and inserting ``(19 U.S.C.''.
       (12) Subparagraph (B) of section 995(b)(3) is amended by 
     striking ``the Military Security Act of 1954 (22 U.S.C. 
     1934)'' and inserting ``section 38 of the International 
     Security Assistance and Arms Export Control Act of 1976 (22 
     U.S.C. 2778)''.
       (13) Section 1391(g)(3)(C) is amended by striking 
     ``paragraph (1)(B)'' and inserting ``paragraph (1)''.
       (14)(A) Paragraph (2) of section 2035(c) is amended by 
     striking ``paragraph (1)'' and inserting ``subsection (a)''.
       (B) Subsection (d) of section 2035 is amended by inserting 
     ``and paragraph (1) of subsection (c)'' after ``Subsection 
     (a)''.
       (15) Paragraph (5) of section 3121(a) is amended by 
     striking the semicolon at the end of subparagraph (G) and 
     inserting a comma.
       (16) Subparagraph (B) of section 4946(c)(3) is amended by 
     striking ``the lowest rate of compensation prescribed for GS-
     16 of the General Schedule under section 5332'' and inserting 
     ``the lowest rate of basic pay for the Senior Executive 
     Service under section 5382''.
       (17) Subsection (p) of section 6103 is amended--
       (A) in paragraph (4), in the matter preceding subparagraph 
     (A)--
       (i) by striking the second comma after ``(13)'', and
       (ii) by striking ``(7)'' and all that follows through 
     ``shall, as a condition'' and inserting ``(7), (8), (9), 
     (12), (15), or (16) or any other person described in 
     subsection (l)(16) shall, as a condition'', and
       (B) in paragraph (4)(F)(ii), by striking the second comma 
     after ``(14)''.
       (18) Paragraph (5) of section 6166(k) is amended by 
     striking ``2035(d)(4)'' and inserting ``2035(c)(2)''.
       (19) Subsection (a) of section 6512 is amended by striking 
     ``; and'' at the end of paragraphs (1), (2), and (5) and 
     inserting ``, and''.
       (20) Paragraph (1) of section 6611(g) is amended by 
     striking the comma after ``(b)(3)''.
       (21) Subparagraphs (A) and (B) of section 6655(e)(5) are 
     amended by striking ``subsections (d)(5) and (l)(3)(B)'' and 
     inserting ``subsection (d)(5)''.
       (22) The subchapter heading for subchapter D of chapter 67 
     is amended by capitalizing the first letter of the second 
     word.
       (23)(A) Section 6724(d)(1)(B) is amended by striking 
     clauses (xiv) through (xvii) and inserting the following:
       ``(xiv) subparagraph (A) or (C) of subsection (c)(4) of 
     section 4093 (relating to information reporting with respect 
     to tax on diesel and aviation fuels),
       ``(xv) section 4101(d) (relating to information reporting 
     with respect to fuels taxes),
       ``(xvi) subparagraph (C) of section 338(h)(10) (relating to 
     information required to be furnished to the Secretary in case 
     of elective recognition of gain or loss), or
       ``(xvii) section 264(f)(5)(A)(iv) (relating to reporting 
     with respect to certain life insurance and annuity 
     contracts), and''.
       (B) Section 6010(o)(4)(C) of the Internal Revenue Service 
     Restructuring and Reform Act of 1998 is amended by striking 
     ``inserting `or', and by adding at the end'' and inserting 
     ``inserting `, or', and by adding after subparagraph (Z)''.
       (24) Subsection (a) of section 7421 is amended by striking 
     ``6672(b)'' and inserting ``6672(c)''.
       (25) Paragraph (3) of section 7430(c) is amended--
       (A) in the paragraph heading, by striking ``Attorneys'' and 
     inserting ``Attorneys' '', and
       (B) in subparagraph (B), by striking ``attorneys fees'' 
     each place it appears and inserting ``attorneys' fees''.
       (26) Paragraph (2) of section 7603(b) is amended by 
     striking the semicolon at the end of subparagraphs (A), (B), 
     (C), (D), (E), (F), and (G) and inserting a comma.
       (27) Clause (ii) of section 7802(b)(2)(B) is amended by 
     striking ``; and'' at the end and inserting ``, and''.
       (28) Paragraph (3) of section 7811(a) is amended by 
     striking ``taxpayer assistance order'' and inserting 
     ``Taxpayer Assistance Order''.
       (29) Paragraph (1) of section 7811(d) is amended by 
     striking ``Ombudsman's'' and inserting ``National Taxpayer 
     Advocate's''.
       (30) Paragraph (3) of section 7872(f) is amended by 
     striking ``foregoing'' and inserting ``forgoing''.
                     Subtitle D--Pay-Go Adjustment

     SEC. 731. AVOIDANCE OF A PAY-GO SEQUESTRATION FOR FISCAL YEAR 
                   2001.

       (a) Pay-Go Adjustments.--(1) In preparing the final 
     sequestration report required by section 254(f)(3) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 for 
     fiscal year 2001, in addition to the information required by 
     that section, the Director of the Office of Management and 
     Budget shall change any balance of direct spending and 
     receipts legislation for fiscal year 2001 under section 252 
     of that Act to zero.
       (2) Notwithstanding Rule 3 of the Budget Scorekeeping 
     Guidelines set forth in the joint explanatory statement of 
     the committee of conference accompanying the conference 
     report on the bill H.R. 2015 of the 105th Congress (House 
     Report No. 105-217, filed July 30, 1997), the legislation 
     enacted in sections 504 and 505 of the Department of 
     Transportation and Related Agencies Appropriations Act, 2001, 
     section 312 of the Legislative Branch Appropriations Act, 
     2001, and section 1003 of division B of H.R. 4516 (106th 
     Congress), as enacted, that would have been estimated by the 
     Office of Management and Budget as changing direct spending 
     or receipts under section 252 of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 were it included in an 
     Act other than an appropriations Act shall be treated as 
     direct spending or receipts legislation, as appropriate, 
     under section 252 of the Balanced Budget and Emergency 
     Deficit Control Act of 1985.
       (b) Exemption of Certain Budgetary Reports from 
     Termination.--Section 3003(a)(1) of the Federal Reports 
     Elimination and Sunset Act of 1995 (31 U.S.C. 1113 note) does 
     not apply to any report required to be submitted under any of 
     the following provisions of law:
       (1) Sections 1105(a), 1106(a) and (b), and 1109(a) of title 
     31, United States Code, and any other law relating to the 
     budget of the United States Government.
       (2) The Balanced Budget and Emergency Deficit Control Act 
     of 1985 (2 U.S.C. 900 et seq.).
       (3) Sections 202(e)(1) and (3) of the Congressional Budget 
     Act of 1974 (2 U.S.C. 602(e)(1) and (3)).
       (4) Section 1014(e) of the Congressional Budget and 
     Impoundment Control Act of 1974 (2 U.S.C. 685(e)).
       Following is explanatory language for H.R. 5542 as 
     introduced on October 25, 2000. References in the following 
     to the ``conference agreement'' refer to the text of that 
     bill.

       TITLE I. FSC REPEAL AND EXTRATERRITORIAL INCOME EXCLUSION

  Repeal of FSC Provisions and Exclusion for Extraterritorial Income 
 (Secs. 101-104 of the Bill and Secs. 114, 921-927, and 941-943 of the 
                                 Code)


                              present law

     Summary of U.S. income taxation of foreign persons
       Income earned by a foreign corporation from its foreign 
     operations generally is subject to U.S. tax only when such 
     income is distributed to a U.S. person that holds stock in 
     such corporation. Accordingly, a U.S. person that conducts 
     foreign operations through a foreign corporation generally is 
     subject to U.S. tax on the income from those operations when 
     the income is repatriated to the United States through a 
     dividend distribution to the U.S. person.\1\ The income is 
     reported on the U.S. person's tax return for the year the 
     distribution is received, and the United States imposes tax 
     on such income at that time. An indirect foreign tax credit 
     may reduce the U.S. tax imposed on such income.
---------------------------------------------------------------------------
     \1\ A variety of anti-deferral regimes impose current U.S. 
     tax on income earned by a U.S. person through a foreign 
     corporation. The Internal Revenue Code of 1986, as amended, 
     (the ``Code'') sets forth the following anti-deferral 
     regimes: the controlled foreign corporation rules of subpart 
     F (secs. 951-954), the passive foreign investment company 
     rules (secs. 1291-1298), the foreign personal holding company 
     rules (secs. 551-558), the personal holding company rules 
     (secs. 541-547), the accumulated earnings tax rules (secs. 
     531-537), and the foreign investment company rules (sec. 
     1246). Detailed rules for coordination among the anti-
     deferral regimes are provided to prevent a U.S. person from 
     being subject to U.S. tax on the same item of income under 
     multiple regimes.
---------------------------------------------------------------------------
     Foreign sales corporations
       The income of an eligible foreign sales corporation 
     (``FSC'') is partially subject to U.S. income tax and 
     partially exempt from U.S. income tax. In addition, a U.S. 
     corporation generally is not subject to U.S. income tax on 
     dividends distributed from the FSC out of certain earnings.
       A FSC must be located and managed outside the United 
     States, and must perform certain economic processes outside 
     the United States. A FSC is often owned by a U.S. corporation 
     that produces goods in the United States. The U.S. 
     corporation either supplies goods to the FSC for resale 
     abroad or pays the FSC a commission in connection with such 
     sales. The income of the FSC, a portion of which is exempt 
     from U.S. income tax under the FSC rules, equals the FSC's 
     gross markup or gross commission income less the expenses 
     incurred by the FSC. The gross markup or the gross commission 
     is determined according to specified pricing rules.
       A FSC generally is not subject to U.S. income tax on its 
     exempt foreign trade income. The exempt foreign trade income 
     of a FSC is treated as foreign-source income that is not 
     effectively connected with the conduct of a trade or business 
     within the United States.
       Foreign trade income, other than exempt foreign trade 
     income, generally is treated as U.S.-source income 
     effectively connected with the conduct of a trade or business 
     conducted through a permanent establishment within the United 
     States. Thus, a FSC's income, other than exempt foreign trade 
     income, generally is subject to U.S. tax currently and is 
     treated as U.S.-source income for purposes of the foreign tax 
     credit limitation.
       Foreign trade income of a FSC is defined as the FSC's gross 
     income attributable to foreign trading gross receipts. 
     Foreign trading gross receipts generally are the gross 
     receipts attributable to the following types of

[[Page H10956]]

     transactions: the sale of export property; the lease or 
     rental of export property; services related and subsidiary to 
     such a sale or lease of export property; engineering and 
     architectural services for projects outside the United 
     States; and export management services. Investment income and 
     carrying charges are excluded from the definition of foreign 
     trading gross receipts.
       The term ``export property'' generally means property (1) 
     which is manufactured, produced, grown or extracted in the 
     United States by a person other than a FSC; (2) which is held 
     primarily for sale, lease, or rental in the ordinary course 
     of a trade or business for direct use or consumption outside 
     the United States; and (3) not more than 50 percent of the 
     fair market value of which is attributable to articles 
     imported into the United States. The term ``export property'' 
     does not include property leased or rented by a FSC for use 
     by any member of a controlled group of which the FSC is a 
     member; patents, copyrights (other than films, tapes, 
     records, similar reproductions, and other than computer 
     software, whether or not patented), and other intangibles; 
     oil or gas (or any primary product thereof); unprocessed 
     softwood timber; or products the export of which is 
     prohibited or curtailed. Export property also excludes 
     property designated by the President as being in short 
     supply.
       If export property is sold to a FSC by a related person (or 
     a commission is paid by a related person to a FSC with 
     respect to export property), the income with respect to the 
     export transaction must be allocated between the FSC and the 
     related person. The taxable income of the FSC and the taxable 
     income of the related person are computed based upon a 
     transfer price determined under section 482 or under one of 
     two formulas specified in the FSC provisions.
       The portion of a FSC's foreign trade income that is treated 
     as exempt foreign trade income depends on the pricing rule 
     used to determine the income of the FSC. If the amount of 
     income earned by the FSC is based on section 482 pricing, the 
     exempt foreign trade income generally is 30 percent of the 
     foreign trade income the FSC derives from a transaction. If 
     the income earned by the FSC is determined under one of the 
     two formulas specified in the FSC provisions, the exempt 
     foreign trade income generally is 15/23 of the foreign trade 
     income the FSC derives from the transaction.
       A FSC is not required or deemed to make distributions to 
     its shareholders. Actual distributions are treated as being 
     made first out of earnings and profits attributable to 
     foreign trade income, and then out of any other earnings and 
     profits. A U.S. corporation generally is allowed a 100 
     percent dividends-received deduction for amounts distributed 
     from a FSC out of earnings and profits attributable to 
     foreign trade income. The 100 percent dividends-received 
     deduction is not allowed for nonexempt foreign trade income 
     determined under section 482 pricing. Any distribution made 
     by a FSC out of earnings and profits attributable to 
     foreign trade income to a foreign shareholder is treated 
     as U.S.-source income that is effectively connected with a 
     business conducted through a permanent establishment of 
     the shareholder within the United States. Thus, the 
     foreign shareholder is subject to U.S. tax on such a 
     distribution.


                               House Bill

       No provision. However, H.R. 4986, as passed by the House, 
     repeals the present-law FSC rules and replaces them with an 
     exclusion for extraterritorial income.


                            Senate Amendment

       No provision. However, the Senate Finance Committee 
     reported favorably an amended version of H.R. 4986 to the 
     Senate (the ``Senate Finance Committee amendment''). The 
     Senate has taken no action with respect to the Senate Finance 
     Committee amendment. The Senate Finance Committee amendment 
     generally follows H.R. 4986, as passed by the House, with one 
     amendment to strike a provision providing for a dividends-
     received deduction for certain dividends allocable to 
     qualifying foreign trade income. Like H.R. 4986, the Senate 
     Finance Committee amendment repeals the present-law FSC rules 
     and replaces them with an exclusion for extraterritorial 
     income.


                          Conference Agreement

       The conference agreement generally follows H.R. 4986, as 
     passed by the House, and the Senate Finance Committee 
     amendment, with some modifications. The conference agreement, 
     like the Senate Finance Committee amendment, does not include 
     the provision in the House bill that provides a dividends-
     received deduction for certain dividends allocable to 
     qualifying foreign trade income.
     Repeal of the FSC rules
       The conference agreement repeals the present-law FSC rules 
     found in sections 921 through 927 of the Code.
     Exclusion of extraterritorial income
       The conference agreement provides that gross income for 
     U.S. tax purposes does not include extraterritorial income. 
     Because the exclusion of such extraterritorial income is a 
     means of avoiding double taxation, no foreign tax credit is 
     allowed for income taxes paid with respect to such excluded 
     income. Extraterritorial income is eligible for the exclusion 
     to the extent that it is ``qualifying foreign trade income.'' 
     Because U.S. income tax principles generally deny deductions 
     for expenses related to exempt income, otherwise deductible 
     expenses that are allocated to qualifying foreign trade 
     income generally are disallowed.
       The conference agreement applies in the same manner with 
     respect to both individuals and corporations who are U.S. 
     taxpayers. In addition, the exclusion from gross income 
     applies for individual and corporate alternative minimum tax 
     purposes.
     Qualifying foreign trade income
       Under the conference agreement, qualifying foreign trade 
     income is the amount of gross income that, if excluded, would 
     result in a reduction of taxable income by the greatest of 
     (1) 1.2 percent of the ``foreign trading gross receipts'' 
     derived by the taxpayer from the transaction,2 (2) 
     15 percent of the ``foreign trade income'' derived by the 
     taxpayer from the transaction, or (3) 30 percent of the 
     ``foreign sale and leasing income'' derived by the taxpayer 
     from the transaction. The amount of qualifying foreign trade 
     income determined using 1.2 percent of the foreign trading 
     gross receipts is limited to 200 percent of the qualifying 
     foreign trade income that would result using 15 percent of 
     the foreign trade income. Notwithstanding the general rule 
     that qualifying foreign trade income is based on one of the 
     three calculations that results in the greatest reduction in 
     taxable income, a taxpayer may choose instead to use one of 
     the other two calculations that does not result in the 
     greatest reduction in taxable income. Although these 
     calculations are determined by reference to a reduction of 
     taxable income (a net income concept), qualifying foreign 
     trade income is an exclusion from gross income. Hence, once a 
     taxpayer determines the appropriate reduction of taxable 
     income, that amount must be ``grossed up'' for related 
     expenses in order to determine the amount of gross income 
     excluded.3
---------------------------------------------------------------------------
     \2\ The term ``transaction'' means (1) any sale, exchange, or 
     other disposition; (2) any lease or rental; and (3) any 
     furnishing of services.
     \3\ For an example of these calculations, see the General 
     Example, below.
---------------------------------------------------------------------------
       If a taxpayer uses 1.2 percent of foreign trading gross 
     receipts to determine the amount of qualifying foreign trade 
     income with respect to a transaction, the taxpayer or any 
     other related persons will be treated as having no qualifying 
     foreign trade income with respect to any other transaction 
     involving the same property.4 For example, assume 
     that a manufacturer and a distributor of the same product are 
     related persons. The manufacturer sells the product to the 
     distributor at an arm's-length price of $80 (generating $30 
     of profit) and the distributor sells the product to an 
     unrelated customer outside of the United States for $100 
     (generating $20 of profit). If the distributor chooses to 
     calculate its qualifying foreign trade income on the basis of 
     1.2 percent of foreign trading gross receipts, then the 
     manufacturer will be considered to have no qualifying foreign 
     trade income and, thus, would have no excluded income. The 
     distributor's qualifying foreign trade income would be 1.2 
     percent of $100, and the manufacturer's qualifying foreign 
     trade income would be zero. This limitation is intended to 
     prevent a duplication of exclusions from gross income because 
     the distributor's $100 of gross receipts includes the $80 of 
     gross receipts of the manufacturer. Absent this limitation, 
     $80 of gross receipts would have been double counted for 
     purposes of the exclusion. If both persons were permitted to 
     use 1.2 percent of their foreign trading gross receipts in 
     this example, then the related-person group would have an 
     exclusion based on $180 of foreign trading gross receipts 
     notwithstanding that the related- person group really only 
     generated $100 of gross receipts from the transaction. 
     However, if the distributor chooses to calculate its 
     qualifying foreign trade income on the basis of 15 percent of 
     foreign trade income (15 percent of $20 of profit), then the 
     manufacturer would also be eligible to calculate its 
     qualifying foreign trade income in the same manner (15 
     percent of $30 of profit).5 Thus, in the second 
     case, each related person may exclude an amount of income 
     based on their respective profits. The total foreign trade 
     income of the related-person group is $50. Accordingly, 
     allowing each person to calculate the exclusion based on 
     their respective foreign trade income does not result in 
     duplication of exclusions.
---------------------------------------------------------------------------
     \4\ Persons are considered to be related if they are treated 
     as a single employer under section 52(a) or (b) (determined 
     without taking into account section 1563(b), thus including 
     foreign corporations) or section 414(m) or (o).
     \5\  The manufacturer also could compute qualifying foreign 
     trade income based on 30 percent of foreign sale and leasing 
     income.
---------------------------------------------------------------------------
       Under the conference agreement, a taxpayer may determine 
     the amount of qualifying foreign trade income either on a 
     transaction-by-transaction basis or on an aggregate basis for 
     groups of transactions, so long as the groups are based on 
     product lines or recognized industry or trade usage. Under 
     the grouping method, the conferees intend that taxpayers be 
     given reasonable flexibility to identify product lines or 
     groups on the basis of recognized industry or trade usage. In 
     general, provided that the taxpayer's grouping is not 
     unreasonable, it will not be rejected merely because the 
     grouped products fall within more than one of the two-digit 
     Standard Industrial Classification codes.6 The 
     Secretary of the Treasury is

[[Page H10957]]

     granted authority to prescribe rules for grouping 
     transactions in determining qualifying foreign trade income.
---------------------------------------------------------------------------
     \6\ By reference to Standard Industrial Classification codes, 
     the conferees intend to include industries as defined in the 
     North American Industrial Classification System.
---------------------------------------------------------------------------
       Qualifying foreign trade income must be reduced by illegal 
     bribes, kickbacks and similar payments, and by a factor for 
     operations in or related to a country associated in carrying 
     out an international boycott, or participating or cooperating 
     with an international boycott.
       In addition, the conference agreement directs the Secretary 
     of the Treasury to prescribe rules for marginal costing in 
     those cases in which a taxpayer is seeking to establish or 
     maintain a market for qualifying foreign trade property.
       Foreign trading gross receipts
       Under the conference agreement, ``foreign trading gross 
     receipts'' are gross receipts derived from certain activities 
     in connection with ``qualifying foreign trade property'' with 
     respect to which certain ``economic processes'' take place 
     outside of the United States. Specifically, the gross 
     receipts must be (1) from the sale, exchange, or other 
     disposition of qualifying foreign trade property; (2) from 
     the lease or rental of qualifying foreign trade property for 
     use by the lessee outside of the United States; (3) for 
     services which are related and subsidiary to the sale, 
     exchange, disposition, lease, or rental of qualifying foreign 
     trade property (as described above); (4) for engineering or 
     architectural services for construction projects located 
     outside of the United States; or (5) for the performance of 
     certain managerial services for unrelated persons. Gross 
     receipts from the lease or rental of qualifying foreign trade 
     property include gross receipts from the license of 
     qualifying foreign trade property. Consistent with the policy 
     adopted in the Taxpayer Relief Act of 1997,7 this 
     includes the license of computer software for reproduction 
     abroad.
---------------------------------------------------------------------------
     \7\ The Taxpayer Relief Act of 1997, Public Law 105-34.
---------------------------------------------------------------------------
       Foreign trading gross receipts do not include gross 
     receipts from a transaction if the qualifying foreign trade 
     property or services are for ultimate use in the United 
     States, or for use by the United States (or an 
     instrumentality thereof) and such use is required by law or 
     regulation. Foreign trading gross receipts also do not 
     include gross receipts from a transaction that is 
     accomplished by a subsidy granted by the government (or any 
     instrumentality thereof) of the country or possession in 
     which the property is manufactured.
       A taxpayer may elect to treat gross receipts from a 
     transaction as not foreign trading gross receipts. As a 
     consequence of such an election, the taxpayer could utilize 
     any related foreign tax credits in lieu of the exclusion as a 
     means of avoiding double taxation. It is intended that this 
     election be accomplished by the taxpayer's treatment of such 
     items on its tax return for the taxable year. Provided that 
     the taxpayer's taxable year is still open under the statute 
     of limitations for making claims for refund under section 
     6511, a taxpayer can make redeterminations as to whether the 
     gross receipts from a transaction constitute foreign trading 
     gross receipts.
       Foreign economic processes
       Under the conference agreement, gross receipts from a 
     transaction are foreign trading gross receipts only if 
     certain economic processes take place outside of the United 
     States. The foreign economic processes requirement is 
     satisfied if the taxpayer (or any person acting under a 
     contract with the taxpayer) participates outside of the 
     United States in the solicitation (other than advertising), 
     negotiation, or making of the contract relating to such 
     transaction and incurs a specified amount of foreign direct 
     costs attributable to the transaction.8 For this 
     purpose, foreign direct costs include only those costs 
     incurred in the following categories of activities: (1) 
     advertising and sales promotion; (2) the processing of 
     customer orders and the arranging for delivery; (3) 
     transportation outside of the United States in connection 
     with delivery to the customer; (4) the determination and 
     transmittal of a final invoice or statement of account or the 
     receipt of payment; and (5) the assumption of credit risk. An 
     exception from the foreign economic processes requirement is 
     provided for taxpayers with foreign trading gross receipts 
     for the year of $5 million or less.9
---------------------------------------------------------------------------
     \8\ The foreign direct costs attributable to the transaction 
     generally must exceed 50 percent of the total direct costs 
     attributable to the transaction, but the requirement also 
     will be satisfied if, with respect to at least two categories 
     of direct costs, the foreign direct costs equal or exceed 85 
     percent of the total direct costs attributable to each 
     category.
     \9\ For this purpose, the receipts of related persons are 
     aggregated and, in the case of pass- through entities, the 
     determination of whether the foreign trading gross receipts 
     exceed $5 million is made both at the entity and at the 
     partner/shareholder level.
---------------------------------------------------------------------------
       The foreign economic processes requirement must be 
     satisfied with respect to each transaction and, if so, any 
     gross receipts from such transaction could be considered as 
     foreign trading gross receipts. For example, all of the lease 
     payments received with respect to a multi- year lease 
     contract, which contract met the foreign economic processes 
     requirement at the time it was entered into, would be 
     considered as foreign trading gross receipts. On the other 
     hand, a sale of property that was formerly a leased asset, 
     which was not sold pursuant to the original lease agreement, 
     generally would be considered a new transaction that must 
     independently satisfy the foreign economic processes 
     requirement.
       A taxpayer's foreign economic processes requirement is 
     treated as satisfied with respect to a sales transaction 
     (solely for the purpose of determining whether gross receipts 
     are foreign trading gross receipts) if any related person has 
     satisfied the foreign economic processes requirement in 
     connection with another sales transaction involving the same 
     qualifying foreign trade property.
       Qualifying foreign trade property
       Under the conference agreement, the threshold for 
     determining if gross receipts will be treated as foreign 
     trading gross receipts is whether the gross receipts are 
     derived from a transaction involving ``qualifying foreign 
     trade property.'' Qualifying foreign trade property is 
     property manufactured, produced, grown, or extracted 
     (``manufactured'') within or outside of the United States 
     that is held primarily for sale, lease, or 
     rental,10 in the ordinary course of a trade or 
     business, for direct use, consumption, or disposition outside 
     of the United States.11 In addition, not more than 
     50 percent of the fair market value of such property can be 
     attributable to the sum of (1) the fair market value of 
     articles manufactured outside of the United States plus (2) 
     the direct costs of labor performed outside of the United 
     States.12
---------------------------------------------------------------------------
     \10\ In addition, consistent with the policy adopted in the 
     Taxpayer Relief Act of 1997, computer software licensed for 
     reproduction is considered as property held primarily for 
     sale, lease, or rental.
     \11\ ``United States'' includes Puerto Rico for these 
     purposes because Puerto Rico is included in the customs 
     territory of the United States.
     \12\ For this purpose, the fair market value of any article 
     imported into the United States is its appraised value as 
     determined under the Tariff Act of 1930. In addition, direct 
     labor costs are determined under the principles of section 
     263A and do not include costs that would be treated as direct 
     labor costs attributable to ``articles,'' again applying 
     principles of section 263A.
---------------------------------------------------------------------------
       The conferees understand that under current industry 
     practice, the purchaser of an aircraft contracts separately 
     for the aircraft engine and the airframe, albeit contracting 
     with the airframe manufacturer to attach the separately 
     purchased engine. The conferees intend that an aircraft 
     engine be qualifying foreign trade property (assuming that 
     all other requirements are satisfied) if (1) it is 
     specifically designed to be separated from the airframe to 
     which it is attached without significant damage to either the 
     engine or the airframe, (2) it is reasonably expected to be 
     separated from the airframe in the ordinary course of 
     business (other than by reason of temporary separation for 
     servicing, maintenance, or repair) before the end of the 
     useful life of either the engine or the airframe, 
     whichever is shorter, and (3) the terms under which the 
     aircraft engine was sold were directly and separately 
     negotiated between the manufacturer of the aircraft engine 
     and the person to whom the aircraft will be ultimately 
     delivered. By articulating this application of the foreign 
     destination test in the case of certain separable aircraft 
     engines, the conferees intend no inference with respect to 
     the application of any destination test under present law 
     or with respect to any other rule of law outside the 
     conference agreement. 13
---------------------------------------------------------------------------
     \13\ See, e.g., sections 927(a)(1)(B) and 993(c)(1)(B).
---------------------------------------------------------------------------
       The conference agreement excludes certain property from the 
     definition of qualifying foreign trade property. The excluded 
     property is (1) property leased or rented by the taxpayer for 
     use by a related person, (2) certain 
     intangibles,14 (3) oil and gas (or any primary 
     product thereof), (4) unprocessed softwood timber, (5) 
     certain products the transfer of which are prohibited or 
     curtailed to effectuate the policy set forth in Public Law 
     96-72, and (6) property designated by Executive order as in 
     short supply. In addition, it is the intention of the 
     conferees that property that is leased or licensed to a 
     related person who is the lessor, licensor, or seller of the 
     same property in a sublease, sublicense, sale, or rental to 
     an unrelated person for the ultimate and predominate use by 
     the unrelated person outside of the United States is not 
     excluded property by reason of such lease or license to a 
     related person.
---------------------------------------------------------------------------
     \14\ The intangibles that are treated as excluded property 
     under the bill are: patents, inventions, models, designs, 
     formulas, or processes whether or not patented, copyrights 
     (other than films, tapes, records, or similar reproductions, 
     and other than computer software (whether or not patented), 
     for commercial or home use), goodwill, trademarks, trade 
     brands, franchises, or other like property. Computer software 
     that is licensed for reproduction outside of the United 
     States is not excluded from the definition of qualifying 
     foreign trade property.
---------------------------------------------------------------------------
       With respect to property that is manufactured outside of 
     the United States, rules are provided to ensure consistent 
     U.S. tax treatment with respect to manufacturers. The 
     conference agreement requires that property manufactured 
     outside of the United States be manufactured by (1) a 
     domestic corporation, (2) an individual who is a citizen or 
     resident of the United States, (3) a foreign corporation that 
     elects to be subject to U.S. taxation in the same manner as a 
     U.S. corporation, or (4) a partnership or other pass-through 
     entity all of the partners or owners of which are described 
     in (1), (2), or (3) above.15
---------------------------------------------------------------------------
     \15\ Except as provided by the Secretary of the Treasury, 
     tiered partnerships or pass-through entities will be 
     considered as partnerships or pass-through entities for 
     purposes of this rule if each of the partnerships or entities 
     is directly or indirectly wholly-owned by persons described 
     in (1), (2), or (3) above.

---------------------------------------------------------------------------

[[Page H10958]]

       Foreign trade income
       Under the conference agreement, ``foreign trade income'' is 
     the taxable income of the taxpayer (determined without regard 
     to the exclusion of qualifying foreign trade income) 
     attributable to foreign trading gross receipts. Certain 
     dividends-paid deductions of cooperatives are disregarded in 
     determining foreign trade income for this purpose.
       Foreign sale and leasing income
       Under the conference agreement, ``foreign sale and leasing 
     income'' is the amount of the taxpayer's foreign trade income 
     (with respect to a transaction) that is properly allocable to 
     activities that constitute foreign economic processes (as 
     described above). For example, a distribution company's 
     profit from the sale of qualifying foreign trade property 
     that is associated with sales activities, such as 
     solicitation or negotiation of the sale, advertising, 
     processing customer orders and arranging for delivery, 
     transportation outside of the United States, and other 
     enumerated activities, would constitute foreign sale and 
     leasing income.
       Foreign sale and leasing income also includes foreign trade 
     income derived by the taxpayer in connection with the lease 
     or rental of qualifying foreign trade property for use by the 
     lessee outside of the United States. Income from the sale, 
     exchange, or other disposition of qualifying foreign trade 
     property that is or was subject to such a lease 16 
     (i.e., the sale of the residual interest in the leased 
     property) gives rise to foreign sale and leasing income. 
     Except as provided in regulations, a special limitation 
     applies to leased property that (1) is manufactured by the 
     taxpayer or (2) is acquired by the taxpayer from a related 
     person for a price that was other than arm's length. In such 
     cases, foreign sale and leasing income may not exceed the 
     amount of foreign sale and leasing income that would have 
     resulted if the taxpayer had acquired the leased property in 
     a hypothetical arm's-length purchase and then engaged in the 
     actual sale or lease of such property. For example, if a 
     manufacturer leases qualifying foreign trade property that it 
     manufactured, the foreign sale and leasing income derived 
     from that lease may not exceed the amount of foreign sale and 
     leasing income that the manufacturer would have earned with 
     respect to that lease had it purchased the property for an 
     arm's-length price on the day that the manufacturer entered 
     into the lease. For purposes of calculating the limit on 
     foreign sale and leasing income, the manufacturer's basis 
     and, thus, depreciation would be based on this hypothetical 
     arm's-length price. This limitation is intended to prevent 
     foreign sale and leasing income from including profit 
     associated with manufacturing activities.
---------------------------------------------------------------------------
     \16\ For this purpose, such a lease includes a lease that 
     gave rise to exempt foreign trade income under the FSC 
     provisions.
---------------------------------------------------------------------------
       For purposes of determining foreign sale and leasing 
     income, only directly allocable expenses are taken into 
     account in calculating the amount of foreign trade income. In 
     addition, income properly allocable to certain intangibles is 
     excluded for this purpose.
     General example
       The following is an example of the calculation of 
     qualifying foreign trade income.
       XYZ Corporation, a U.S. corporation, manufactures property 
     that is sold to unrelated customers for use outside of the 
     United States. XYZ Corporation satisfies the foreign economic 
     processes requirement through conducting activities such as 
     solicitation, negotiation, transportation, and other sales-
     related activities outside of the United States with respect 
     to its transactions. During the year, qualifying foreign 
     trade property was sold for gross proceeds totaling $1,000. 
     The cost of this qualifying foreign trade property was $600. 
     XYZ Corporation incurred $275 of costs that are directly 
     related to the sale and distribution of qualifying foreign 
     trade property. XYZ Corporation paid $40 of income tax to a 
     foreign jurisdiction related to the sale and distribution of 
     the qualifying foreign trade property. XYZ Corporation also 
     generated gross income of $7,600 (gross receipts of $24,000 
     and cost of goods sold of $16,400) and direct expenses of 
     $4,225 that relate to the manufacture and sale of products 
     other than qualifying foreign trade property. XYZ Corporation 
     also incurred $500 of overhead expenses. XYZ Corporation's 
     financial information for the year is summarized as follows:
       XYZ Corporation, a U.S. corporation, manufactures property 
     that is sold to unrelated customers for use outside of the 
     United States. XYZ Corporation satisfies the foreign economic 
     processes requirement through conducting activities such as 
     solicitation, negotiation,
---------------------------------------------------------------------------
     \17\ ``QFTP'' refers to qualifying foreign trade property.

------------------------------------------------------------------------
                                                   Other
                                      Total       property     QFTP 17
------------------------------------------------------------------------
Gross receipts...................   $25,000.00   $24,000.00    $1,000.00
Cost of goods sold...............    17,000.00    16,400.00       600.00
                                  --------------------------------------
Gross income.....................     8,000.00     7,600.00       400.00
Direct expenses..................     4,500.00     4,225.00       275.00
Overhead expenses................       500.00
                                  -------------
Net income.......................     3,000.00
------------------------------------------------------------------------

       Illustrated below is the computation of the amount of 
     qualifying foreign trade income that is excluded from XYZ 
     Corporation's gross income and the amount of related expenses 
     that are disallowed. In order to calculate qualifying foreign 
     trade income, the amount of foreign trade income first must 
     be determined. Foreign trade income is the taxable income 
     (determined without regard to the exclusion of qualifying 
     foreign trade income) attributable to foreign trading gross 
     receipts. In this example, XYZ Corporation's foreign trading 
     gross receipts equal $1,000. This amount of gross receipts is 
     reduced by the related cost of goods sold, the related direct 
     expenses, and a portion of the overhead expenses in order to 
     arrive at the related taxable income.18 Thus, XYZ 
     Corporation's foreign trade income equals $100, calculated as 
     follows:
---------------------------------------------------------------------------
     \18\ Overhead expenses must be apportioned in a reasonable 
     manner that does not result in a material distortion of 
     income. In this example, the apportionment of the $500 of 
     overhead expenses on the basis of gross income is assumed not 
     to result in a material distortion of income and is assumed 
     to be a reasonable method of apportionment. Thus, $25 ($500 
     of total overhead expenses multiplied by 5 percent, i.e., 
     $400 of gross income from the sale of qualifying foreign 
     trade property divided by $8,000 of total gross income) is 
     apportioned to qualifying foreign trading gross receipts. The 
     remaining $475 ($500 of total overhead expenses less the $25 
     apportioned to qualifying income) is apportioned to XYZ 
     Corporation's other income.
---------------------------------------------------------------------------
Foreign trading gross receipts................................$1,000.00
Cost of goods sold...............................................600.00
                                                       ________________
                                                       
Gross income.....................................................400.00
Direct expenses..................................................275.00
Apportioned overhead expenses.....................................25.00
                                                       ________________
                                                       
Foreign trade income.............................................100.00

       Foreign sale and leasing income is defined as an amount of 
     foreign trade income (calculated taking into account only 
     directly-related expenses) that is properly allocable to 
     certain specified foreign activities. Assume for purposes of 
     this example that of the $125 of foreign trade income ($400 
     of gross income from the sale of qualifying foreign trade 
     property less only the direct expenses of $275), $35 is 
     properly allocable to such foreign activities (e.g., 
     solicitation, negotiation, advertising, foreign 
     transportation, and other enumerated sales-like activities) 
     and, therefore, is considered to be foreign sale and leasing 
     income.
       Qualifying foreign trade income is the amount of gross 
     income that, if excluded, will result in a reduction of 
     taxable income equal to the greatest of (1) 30 percent of 
     foreign sale and leasing income, (2) 1.2 percent of foreign 
     trading gross receipts, or (3) 15 percent of foreign trade 
     income. Thus, in order to calculate the amount that is 
     excluded from gross income, taxable income must be determined 
     and then ``grossed up'' for allocable expenses in order to 
     arrive at the appropriate gross income figure. First, for 
     each method of calculating qualifying foreign trade income, 
     the reduction in taxable income is determined. Then, the $275 
     of direct and $25 of overhead expenses, totaling $300, 
     attributable to foreign trading gross receipts is apportioned 
     to the reduction in taxable income based on the proportion of 
     the reduction in taxable income to foreign trade income. This 
     apportionment is done for each method of calculating 
     qualifying foreign trade income. The sum of the taxable 
     income reduction and the apportioned expenses equals the 
     respective qualifying foreign trade income (i.e., the amount 
     of gross income excluded) under each method, as follows:

------------------------------------------------------------------------
                                                1.2%     15%       30%
                                                FTGR   FTI \2\    FS&LI
------------------------------------------------\1\----------------\3\--
Reduction of taxable income:
    1.2% of FTGR (1.2% * $1,000)............    12.00
    15% of FTI (15% * $100).................             15.00
    30% of FS&LI (30% * $35)................                       10.50
Gross-up for disallowed expenses:
    $300 * ($12/$100).......................    36.00
    $300 * ($15/$100).......................             45.00
    $275 * ($10.50/$100) \4\................                       28.88
                                             ---------------------------
      Qualifying foreign trade income.......    48.00    60.00    39.38
------------------------------------------------------------------------
\1\ ``FTGR'' refers to foreign trading gross receipts.
\2\ ``FTI'' refers to foreign trade income.
\3\ ``FS&LI'' refers to foreign sale and leasing income.
\4\ Because foreign sale and leasing income only takes into account
  direct expenses, it is appropriate to take into account only such
  expenses for purposes of this calculation.

       In the example, the $60 of qualifying foreign trade income 
     is excluded from XYZ Corporation's gross income (determined 
     based on 15 percent of foreign trade income).\19\ In 
     connection with excluding $60 of gross income, certain 
     expenses that are allocable to this income are not deductible 
     for U.S. Federal income tax purposes. Thus, $45 ($300 of 
     related expenses multiplied by 15 percent, i.e., $60 of 
     qualifying foreign trade income divided by $400 of gross 
     income from the sale of qualifying foreign trade property) of 
     expenses are disallowed.\20\
---------------------------------------------------------------------------
     \19\ Note that XYZ Corporation could choose to use one of the 
     other two methods notwithstanding that they would result in a 
     smaller exclusion.
     \20\ The $300 of allocable expenses includes both the $275 of 
     direct expenses and the $25 of overhead expenses. Thus, the 
     $45 of disallowed expenses represents the sum of $41.25 of 
     direct expenses plus $3.75 of overhead expenses. If 
     qualifying foreign trade income were determined using 30 
     percent of foreign sale and leasing income, the disallowed 
     expenses would include only the appropriate portion of the 
     direct expenses.

[[Page H10959]]



----------------------------------------------------------------------------------------------------------------
                                                                 Other                   Excluded/
                                                                property       QFTP      disallowed     Total
----------------------------------------------------------------------------------------------------------------
Gross receipts..............................................   $24,000.00    $1,000.00
Cost of goods sold..........................................    16,400.00       600.00
                                                             --------------------------
Gross income................................................     7,600.00       400.00      (60.00)     7,940.00
Direct expenses.............................................     4,225.00       275.00      (41.25)     4,458.75
Overhead expenses...........................................       475.00        25.00       (3.75)       496.25
Taxable income..............................................                                            2,985.00
----------------------------------------------------------------------------------------------------------------

       XYZ Corporation paid $40 of income tax to a foreign 
     jurisdiction related to the sale and distribution of the 
     qualifying foreign trade property. A portion of this $40 of 
     foreign income tax is treated as paid with respect to the 
     qualifying foreign trade income and, therefore, is not 
     creditable for U.S. foreign tax credit purposes. In this 
     case, $6 of such taxes paid ($40 of foreign taxes multiplied 
     by 15 percent, i.e., $60 of qualifying foreign trade income 
     divided by $400 of gross income from the sale of qualifying 
     foreign trade property) is treated as paid with respect to 
     the qualifying foreign trade income and, thus, is not 
     creditable.
       The results in this example are the same regardless of 
     whether XYZ Corporation manufactures the property within the 
     United States or outside of the United States through a 
     foreign branch. If XYZ Corporation were an S corporation or 
     limited liability company, the results also would be the 
     same, and the exclusion would pass through to the S 
     corporation owners or limited liability company owners as the 
     case may be.
       Other rules
       Foreign-source income limitation
       The conference agreement provides a limitation with respect 
     to the sourcing of taxable income applicable to certain sale 
     transactions giving rise to foreign trading gross receipts. 
     This limitation only applies with respect to sale 
     transactions involving property that is manufactured within 
     the United States. The special source limitation does not 
     apply when qualifying foreign trade income is determined 
     using 30 percent of the foreign sale and leasing income from 
     the transaction.
       This foreign-source income limitation is determined in one 
     of two ways depending on whether the qualifying foreign trade 
     income is calculated based on 1.2 percent of foreign trading 
     gross receipts or on 15 percent of foreign trade income. If 
     the qualifying foreign trade income is calculated based on 
     1.2 percent of foreign trading gross receipts, the related 
     amount of foreign- source income may not exceed the amount of 
     foreign trade income that (without taking into account this 
     special foreign-source income limitation) would be treated as 
     foreign-source income if such foreign trade income were 
     reduced by 4 percent of the related foreign trading gross 
     receipts.
       For example, assume that foreign trading gross receipts are 
     $2,000 and foreign trade income is $100. Assume also that the 
     taxpayer chooses to determine qualifying foreign trade income 
     based on 1.2 percent of foreign trading gross receipts. 
     Taxable income after taking into account the exclusion of the 
     qualifying foreign trade income and the disallowance of 
     related deductions is $76. Assume that the taxpayer 
     manufactured its qualifying foreign trade property in the 
     United States and that title to such property passed outside 
     of the United States. Absent a special sourcing rule, under 
     section 863(b) (and the regulations thereunder) the $76 of 
     taxable income would be sourced as $38 U.S. source and $38 
     foreign source. Under the special sourcing rule, the amount 
     of foreign-source income may not exceed the amount of the 
     foreign trade income that otherwise would be treated as 
     foreign source if the foreign trade income were reduced by 4 
     percent of the related foreign trading gross receipts. 
     Reducing foreign trade income by 4 percent of the foreign 
     trading gross receipts (4 percent of $2,000, or $80) would 
     result in $20 ($100 foreign trade income less $80). Applying 
     section 863(b) to the $20 of reduced foreign trade income 
     would result in $10 of foreign-source income and $10 of U.S.-
     source income. Accordingly, the limitation equals $10. Thus, 
     although under the general sourcing rule $38 of the $76 
     taxable income would be treated as foreign source, the 
     special sourcing rule limits foreign-source income in this 
     example to $10 (with the remaining $66 being treated as U.S.- 
     source income).
       If the qualifying foreign trade income is calculated based 
     on 15 percent of foreign trade income, the amount of related 
     foreign-source income may not exceed 50 percent of the 
     foreign trade income that (without taking into account this 
     special foreign-source income limitation) would be treated as 
     foreign-source income.
       For example, assume that foreign trade income is $100 and 
     the taxpayer chooses to determine its qualifying foreign 
     trade income based on 15 percent of foreign trade income. 
     Taxable income after taking into account the exclusion of the 
     qualifying foreign trade income and the disallowance of 
     related deductions is $85. Assume that the taxpayer 
     manufactured its qualifying foreign trade property in the 
     United States and that title to such property passed outside 
     of the United States. Absent a special sourcing rule, under 
     section 863(b) the $85 of taxable income would be sourced as 
     $42.50 U.S. source and $42.50 foreign source. Under the 
     special sourcing rule, the amount of foreign-source income 
     may not exceed 50 percent of the foreign trade income that 
     otherwise would be treated as foreign source. Applying 
     section 863(b) to the $100 of foreign trade income would 
     result in $50 of foreign-source income and $50 of U.S.-source 
     income. Accordingly, the limitation equals $25, which is 50 
     percent of the $50 foreign-source income. Thus, although 
     under the general sourcing rule $42.50 of the $85 taxable 
     income would be treated as foreign source, the special 
     sourcing rule limits foreign-source income in this example to 
     $25 (with the remaining $60 being treated as U.S.-source 
     income).\21\
---------------------------------------------------------------------------
     \21\ The foreign-source income limitation provisions also 
     apply when source is determined solely in accordance with 
     section 862 (e.g., a distributor of qualifying foreign trade 
     property that is manufactured in the United States by an 
     unrelated person and sold for use outside of the United 
     States).
---------------------------------------------------------------------------
       Treatment of withholding taxes
       The conference agreement generally provides that no foreign 
     tax credit is allowed for foreign taxes paid or accrued with 
     respect to qualifying foreign trade income (i.e., excluded 
     extraterritorial income). In determining whether foreign 
     taxes are paid or accrued with respect to qualifying foreign 
     trade income, foreign withholding taxes generally are treated 
     as not paid or accrued with respect to qualifying foreign 
     trade income.\22\ Accordingly, the conference agreement's 
     denial of foreign tax credits would not apply to suchtaxes. 
     For this purpose, the term ``withholding tax'' refers to any 
     foreign tax that is imposed on a basis other than residence 
     and that is otherwise a creditable foreign tax under sections 
     901 or 903.\23\ It is intended that such taxes would be 
     similar in nature to the gross-basis taxes described in 
     sections 871 and 881.
---------------------------------------------------------------------------
     \22\ With respect to the withholding taxes that are paid or 
     accrued (a prerequisite to the taxes being otherwise 
     creditable), the provision in the bill treats such taxes as 
     not being paid or accrued with respect to qualifying foreign 
     trade income.
     \23\ This also would apply to any withholding tax that is 
     creditable for U.S. foreign tax credit purposes under an 
     applicable treaty.
---------------------------------------------------------------------------
       If, however, qualifying foreign trade income is determined 
     based on 30 percent of foreign sale and leasing income, the 
     special rule for withholding taxes is not applicable. Thus, 
     in such cases foreign withholding taxes may be treated as 
     paid or accrued with respect to qualifying foreign trade 
     income and, accordingly, are not creditable under the 
     conference agreement.
       Election to be treated as a U.S. corporation
       The conference agreement provides that certain foreign 
     corporations may elect, on an original return, to be treated 
     as domestic corporations. The election applies to the taxable 
     year when made and all subsequent taxable years unless 
     revoked by the taxpayer or terminated for failure to qualify 
     for the election. Such election is available for a foreign 
     corporation (1) that manufactures property in the ordinary 
     course of such corporation's trade or business, or (2) if 
     substantially all of the gross receipts of such corporation 
     are foreign trading gross receipts. For this purpose, 
     ``substantially all'' is based on the relevant facts and 
     circumstances.
       In order to be eligible to make this election, the foreign 
     corporation must waive all benefits granted to such 
     corporation by the United States pursuant to a treaty.\24\ 
     Absent such a waiver, it would be unclear, for example, 
     whether the permanent establishment article of a relevant tax 
     treaty would override the electing corporation's treatment as 
     a domestic corporation under this provision. A foreign 
     corporation that elects to be treated as a domestic 
     corporation is not permitted to make an S corporation 
     election. The Secretary is granted authority to prescribe 
     rules to ensure that the electing foreign corporation pays 
     its U.S. income tax liabilities and to designate one or more 
     classes of corporations that may not make such an 
     election.\25\ If such an election is made, for purposes of 
     section 367 the foreign corporation is treated as 
     transferring (as of the first day of the first taxable year 
     to which the election applies) all of its assets to a 
     domestic corporation in connection with an exchange to which 
     section 354 applies.
---------------------------------------------------------------------------
     \24\ The waiver of treaty benefits applies to the corporation 
     itself and not, for example, to employees of or independent 
     contractors associated with the corporation.
     \25\ For example, the Secretary of the Treasury may prescribe 
     rules to prevent ``per se'' corporations under the entity-
     classification rules from making such an election.
---------------------------------------------------------------------------
       If a corporation fails to meet the applicable requirements, 
     described above, for making the election to be treated as a 
     domestic corporation for any taxable year beginning after the 
     year of the election, the election will terminate. In 
     addition, a taxpayer, at its option and at any time, may 
     revoke the election to be treated as a domestic corporation. 
     In the case of either a termination or a revocation, the 
     electing foreign corporation will not be considered as a 
     domestic corporation

[[Page H10960]]

     effective beginning on the first day of the taxable year 
     following the year of such termination or revocation. For 
     purposes of section 367, if the election to be treated as a 
     domestic corporation is terminated or revoked, such 
     corporation is treated as a domestic corporation transferring 
     (as of the first day of the first taxable year to which the 
     election ceases to apply) all of its property to a foreign 
     corporation in connection with an exchange to which section 
     354 applies. Moreover, once a termination occurs or a 
     revocation is made, the former electing corporation may not 
     again elect to be taxed as a domestic corporation under the 
     provisions of the conference agreement for a period of five 
     tax years beginning with the first taxable year that begins 
     after the termination or revocation.
       For example, assume a U.S. corporation owns 100 percent of 
     a foreign corporation. The foreign corporation manufactures 
     outside of the United States and sells what would be 
     qualifying foreign trade property were it manufactured by a 
     person subject to U.S. taxation. Such foreign corporation 
     could make the election under this provision to be treated as 
     a domestic corporation. As a result, its earnings no longer 
     would be deferred from U.S. taxation. However, by electing to 
     be subject to U.S. taxation, a portion of its income would be 
     qualifying foreign trade income.\26\ The requirement that the 
     foreign corporation be treated as a domestic corporation 
     (and, therefore, subject to U.S. taxation) is intended to 
     provide parity between U.S. corporations that manufacture 
     abroad in branch form and U.S. corporations that manufacture 
     abroad through foreign subsidiaries. The election, however, 
     is not limited to U.S.-owned foreign corporations. A foreign-
     owned foreign corporation that wishes to qualify for the 
     treatment provided under the conference agreement could avail 
     itself of such election (unless otherwise precluded from 
     doing so by Treasury regulations).
---------------------------------------------------------------------------
     \26\ The sourcing limitation described above would not apply 
     to this example because the property is manufactured outside 
     of the United States.
---------------------------------------------------------------------------
       Shared partnerships
       The conference agreement provides rules relating to 
     allocations of qualifying foreign trade income by certain 
     shared partnerships. To the extent that such a partnership 
     (1) maintains a separate account for transactions involving 
     foreign trading gross receipts with each partner, (2) makes 
     distributions to each partner based on the amounts in the 
     separate account, and (3) meets such other requirements as 
     the Treasury Secretary may prescribe by regulations, such 
     partnership then would allocate to each partner items of 
     income, gain, loss, and deduction (including qualifying 
     foreign trade income) from such transactions on the basis of 
     the separate accounts. It is intended that with respect to, 
     and only with respect to, such allocations and distributions 
     (i.e., allocations and distributions related to transactions 
     between the partner and the shared partnership generating 
     foreign trading gross receipts), these rules would apply 
     in lieu of the otherwise applicable partnership allocation 
     rules such as those in section 704(b). For this purpose, a 
     partnership is a foreign or domestic entity that is 
     considered to be a partnership for U.S. Federal income tax 
     purposes.
       Under the conference agreement, any partner's interest in 
     the shared partnership is not taken into account in 
     determining whether such partner is a ``related person'' with 
     respect to any other partner for purposes of the conference 
     agreement's provisions. Also, the election to exclude certain 
     gross receipts from foreign trading gross receipts must be 
     made separately by each partner with respect to any 
     transaction for which the shared partnership maintains a 
     separate account.
       Certain assets not taken into account for purposes of 
           interest expense allocation
       The conference agreement also provides that qualifying 
     foreign trade property that is held for lease or rental, in 
     the ordinary course of a trade or business, for use by the 
     lessee outside of the United States is not taken into account 
     for interest allocation purposes.
       Distributions of qualifying foreign trade income by 
           cooperatives
       Agricultural and horticultural producers often market their 
     products through cooperatives, which are member-owned 
     corporations formed under Subchapter T of the Code. At the 
     cooperative level, the conference agreement provides the same 
     treatment of foreign trading gross receipts derived from 
     products marketed through cooperatives as it provides for 
     foreign trading gross receipts of other taxpayers. That is, 
     the qualifying foreign trade income attributable to those 
     foreign trading gross receipts is excluded from the gross 
     income of the cooperative. Absent a special rule, however, 
     patronage dividends or per-unit retain allocations 
     attributable to qualifying foreign trade income paid to 
     members of cooperatives would be taxable in the hands of 
     those members. The conferees believe that this would 
     disadvantage agricultural and horticultural producers who 
     choose to market their products through cooperatives relative 
     to those individuals who market their products directly or 
     through pass-through entities such as partnerships, limited 
     liability companies, or S corporations. Accordingly, the 
     conference agreement provides that the amount of any 
     patronage dividends or per-unit retain allocations paid to a 
     member of an agricultural or horticultural cooperative (to 
     which Part I of Subchapter T applies), which is allocable to 
     qualifying foreign trade income of the cooperative, is 
     treated as qualifying foreign trade income of the member 
     (and, thus, excludable from such member's gross income). In 
     order to qualify, such amount must be designated by the 
     organization as allocable to qualifying foreign trade income 
     in a written notice mailed to its patrons not later than the 
     payment period described in section 1382(d). The cooperative 
     cannot reduce its income (e.g., cannot claim a ``dividends-
     paid deduction'') under section 1382 for such amounts.
       Gap period before administrative guidance is issued
       The conferees recognize that there may be a gap in time 
     between the enactment of the bill and the issuance of 
     detailed administrative guidance. It is intended that during 
     this gap period before administrative guidance is issued, 
     taxpayers and the Internal Revenue Service may apply the 
     principles of present-law regulations and other 
     administrative guidance under sections 921 through 927 to 
     analogous concepts under the conference agreement. Some 
     examples of the application of the principles of present-law 
     regulations to the conference agreement are described below. 
     These limited examples are intended to be merely illustrative 
     and are not intended to imply any limitation regarding the 
     application of the principles of other analogous rules or 
     concepts under present law.
       Marginal costing and grouping
       Under the conference agreement, the Secretary of the 
     Treasury is provided authority to prescribe rules for using 
     marginal costing and for grouping transactions in determining 
     qualifying foreign trade income. It is intended that similar 
     principles under present-law regulations apply for these 
     purposes.27
---------------------------------------------------------------------------
     \27\ See, e.g., Treas. Reg. sec. 1.924(d)-1(c)(5) and (e); 
     Temp. Treas. Reg. sec. 1.925(a)-1T(c)(8); Temp. Treas. Reg. 
     sec. 1.925(b)-1T.
---------------------------------------------------------------------------
       Excluded property
       The conference agreement provides that qualifying foreign 
     trade property does not include property leased or rented by 
     the taxpayer for use by a related person. It is intended that 
     similar principles under present-law regulations apply for 
     this purpose. Thus, excluded property does not apply, for 
     example, to property leased by the taxpayer to a related 
     person if the property is held for sublease, or is subleased, 
     by the related person to an unrelated person and the property 
     is ultimately used by such unrelated person predominantly 
     outside of the United States.28 In addition, 
     consistent with the policy adopted in the Taxpayer Relief Act 
     of 1997, computer software that is licensed for reproduction 
     outside of the United States is not excluded property. 
     Accordingly, the license of computer software to a related 
     person for reproduction outside of the United States for 
     sale, sublicense, lease, or rental to an unrelated person for 
     use outside of the United States is not treated as excluded 
     property by reason of the license to the related person.
---------------------------------------------------------------------------
     \28\ See Temp. Treas. Reg. sec. 1.927(a)-1T(f)(2)(i). The 
     bill also provides that oil or gas or primary products from 
     oil or gas are excluded from the definition of qualifying 
     foreign trade property. It is intended that similar 
     principles under present-law regulations apply for these 
     purposes. Thus, for this purpose, petrochemicals, medicinal 
     products, insecticides, and alcohols are not considered 
     primary products from oil or gas and, thus, are not treated 
     as excluded property. See Temp. Treas. Reg. sec. 1.927(a)-
     1T(g)(2)(iv).
---------------------------------------------------------------------------
       Foreign trading gross receipts
       Under the conference agreement, foreign trading gross 
     receipts are gross receipts from, among other things, the 
     sale, exchange, or other disposition of qualifying foreign 
     trade property, and from the lease of qualifying foreign 
     trade property for use by the lessee outside of the United 
     States. It is intended that the principles of present-law 
     regulations that define foreign trading gross receipts apply 
     for this purpose. For example, a sale includes an exchange 
     or other disposition and a lease includes a rental or 
     sublease and a license or a sublicense.29
---------------------------------------------------------------------------
     \29\ See Temp. Treas. Reg. sec. 1.924(a)-1T(a)(2).
---------------------------------------------------------------------------
       Foreign use requirement
       Under the conference agreement, property constitutes 
     qualifying foreign trade property if, among other things, the 
     property is held primarily for lease, sale, or rental, in the 
     ordinary course of business, for direct use, consumption, or 
     disposition outside of the United States.30 It is 
     intended that the principles of the present-law regulations 
     apply for purposes of this foreign use requirement. For 
     example, for purposes of determining whether property is sold 
     for use outside of the United States, property that is sold 
     to an unrelated person as a component to be incorporated into 
     a second product which is produced, manufactured, or 
     assembled outside of the United States will not be considered 
     to be used in the United States (even if the second product 
     ultimately is used in the United States), provided that the 
     fair market value of such seller's components at the time of 
     delivery to the purchaser constitutes less than 20 percent of 
     the fair market value of the second product into which the 
     components are incorporated (determined at the

[[Page H10961]]

     time of completion of the production, manufacture, or 
     assembly of the second product).31
---------------------------------------------------------------------------
     \30\ Foreign trading gross receipts eligible for exclusion 
     from the tax base do not include gross receipts from a 
     transaction if the qualifying foreign trade property is for 
     ultimate use in the United States.
     \31\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(ii).
---------------------------------------------------------------------------
       In addition, for purposes of the foreign use requirement, 
     property is considered to be used by a purchaser or lessee 
     outside of the United States during a taxable year if it is 
     used predominantly outside of the United States.32 
     For this purpose, property is considered to be used 
     predominantly outside of the United States for any period if, 
     during that period, the property is located outside of the 
     United States more than 50 percent of the time.33 
     An aircraft or other property used for transportation 
     purposes (e.g., railroad rolling stock, a vessel, a motor 
     vehicle, or a container) is considered to be used outside of 
     the United States for any period if, for the period, either 
     the property is located outside of the United States more 
     than 50 percent of the time or more than 50 percent of the 
     miles traveled in the use of the property are traveled 
     outside of the United States.34 An orbiting 
     satellite is considered to be located outside of the United 
     States for these purposes.35
---------------------------------------------------------------------------
     \32\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(iii), (iv), 
     and (v).
     \33\ See Temp. Treas. Reg. sec. 1.927(a)-1T(d)(4)(vi).
     \34\ Id.
     \35\ Id.
---------------------------------------------------------------------------
       Foreign economic processes
       Under the conference agreement, gross receipts from a 
     transaction are foreign trading gross receipts eligible for 
     exclusion from the tax base only if certain economic 
     processes take place outside of the United States. The 
     foreign economic processes requirement compares foreign 
     direct costs to total direct costs. It is intended that the 
     principles of the present-law regulations apply during the 
     gap period for purposes of the foreign economic processes 
     requirement including the measurement of direct costs. The 
     conferees recognize that the measurement of foreign direct 
     costs under the present-law regulations often depend on 
     activities conducted by the FSC, which is a separate entity. 
     The conferees are aware that some of these concepts will have 
     to be modified when new guidance is promulgated as a result 
     of the conference agreement's elimination of the requirement 
     for a separate entity.
     Effective date
       In general
       The conference agreement is effective for transactions 
     entered into after September 30, 2000. In addition, no 
     corporation may elect to be a FSC after September 30, 2000.
       The conference agreement also provides a rule requiring the 
     termination of a dormant FSC when the FSC has been inactive 
     for a specified period of time. Under this rule, a FSC that 
     generates no foreign trade income for any five consecutive 
     years beginning after December 31, 2001, will cease to be 
     treated as a FSC.
       Transition rules
       Winding down existing FSCs and binding contract relief
       The conference agreement provides a transition period for 
     existing FSCs and for binding contractual agreements. The new 
     rules do not apply to transactions in the ordinary course of 
     business 36 involving a FSC before January 1, 
     2002. Furthermore, the new rules do not apply to transactions 
     in the ordinary course of business after December 31, 2001, 
     if such transactions are pursuant to a binding contract 
     between a FSC (or a person related to the FSC on September 
     30, 2000) and any other person (that is not a related person) 
     and such contract is in effect on September 30, 2000, and all 
     times thereafter. For this purpose, binding contracts include 
     purchase options, renewal options, and replacement options 
     that are enforceable against a lessor or seller (provided 
     that the options are a part of a contract that is binding and 
     in effect on September 30, 2000).
---------------------------------------------------------------------------
     \36\ The mere entering into of a single transaction, such as 
     a lease, would not, in and of itself, prevent the transaction 
     from being in the ordinary course of business.
---------------------------------------------------------------------------
       Old earnings and profits of corporations electing to be 
           treated as domestic corporations
       A transition rule also is provided for certain corporations 
     electing to be treated as a domestic corporation under the 
     bill. In the case of a corporation to which this transition 
     rule applies, the corporation's earnings and profits 
     accumulated in taxable years ending before October 1, 2000 
     are not included in the gross income of the shareholder by 
     reason of the deemed asset transfer for section 367 purposes 
     that the bill provides. Thus, although the electing 
     corporation may be treated as transferring all of its assets 
     to a domestic corporation in a reorganization described in 
     section 368(a)(1)(F), the earnings and profits amount that 
     would otherwise be treated as a deemed dividend to the U.S. 
     shareholder under the regulations under section 367(b) will 
     not include the earnings and profits accumulated in taxable 
     years ending before October 1, 2000. This treatment is 
     similar to the treatment of earnings and profits of a foreign 
     insurance company that makes the election to be treated as a 
     domestic corporation under section 953(d), which election was 
     a model for the election to be treated as a domestic 
     corporation under the bill. Under section 953(d), earnings 
     and profits accumulated in taxable years beginning before 
     January 1, 1988 were not included in the earnings and profits 
     amount that would be a deemed dividend for section 367(b) 
     purposes.
       Like the pre-1988 earnings and profits of a domesticating 
     foreign insurance company under section 953(d), the earnings 
     and profits to which this transition rule applies would 
     continue to be treated as earnings and profits of a foreign 
     corporation even after the corporation elects to be treated 
     as a domestic corporation. Thus, a distribution out of 
     earnings and profits of an electing corporation accumulated 
     in taxable years ending before October 1, 2000 would be 
     treated as a distribution made by a foreign 
     corporation.37 Rules similar to those applicable 
     to corporations making the section 953(d) election that 
     prevent the repatriation of pre-election period earnings and 
     profits without current U.S. taxation apply for this purpose. 
     Thus, for example, the earnings and profits accumulated in 
     taxable years beginning before October 1, 2000 would continue 
     to be taken into account for section 1248 
     purposes.38
---------------------------------------------------------------------------
     \37\ It is anticipated that ordering rules similar to those 
     that have been applied in guidance under section 953(d) would 
     apply to distributions from the electing corporation. See 
     Notice 89-79, 1989-2 C.B. 392.
     \38\ See the rules of section 953(d)(4)(ii), (iii) and (iv).
---------------------------------------------------------------------------
       The earnings and profits to which the transition rule 
     applies are the earnings and profits accumulated by the 
     electing corporation in taxable years ending before October 
     1, 2000. The transition rule will not apply to earnings and 
     profits accumulated before that date that are succeeded to 
     after that date by the electing corporation in a transaction 
     to which section 381 applies unless, like the electing 
     corporation, the distributor or transferor (from whom the 
     electing corporation acquired the earnings and profits) could 
     have itself made the election under the bill to be treated as 
     a domestic corporation and would have been eligible for the 
     transition relief.
       The transition rule for old earnings and profits applies to 
     two classes of taxpayers. The first class is FSCs in 
     existence on September 30, 2000 that make an election to be 
     treated as a domestic corporation because they satisfy the 
     requirement that substantially all of their gross receipts 
     are foreign trading gross receipts. To be eligible for the 
     transition relief, the election must be made not later than 
     for the FSC's first taxable year beginning after December 31, 
     2001.
       The second class of corporations to which this transition 
     relief applies is certain controlled foreign corporations (as 
     defined in section 957). Notwithstanding other requirements 
     for making the election to be treated as a domestic 
     corporation provided under the bill's general provisions, 
     such controlled foreign corporations are eligible under the 
     transition rule to make the election to be treated as a 
     domestic corporation and will not have the resulting deemed 
     asset transfer cause a deemed inclusion of earnings and 
     profits for earnings and profits accumulated in taxable years 
     ending before October 1, 2000. To be eligible for the 
     transition relief, such a controlled foreign corporation must 
     be in existence on September 30, 2000. The controlled foreign 
     corporation must be wholly owned, directly or indirectly, by 
     a domestic corporation.39 The controlled foreign 
     corporation must never have made an election to be treated as 
     a FSC and must make the election to be treated as a domestic 
     corporation not later than for its first taxable year 
     beginning after December 31, 2001. In addition, the 
     controlled foreign corporation must satisfy certain tests 
     with respect to its income and activities. For administrative 
     convenience, these tests are limited to the three taxable 
     years preceding the first taxable year for which the election 
     to be treated as a domestic corporation applies. First, 
     during that three-year period, all of the controlled foreign 
     corporation's gross income must be subpart F income. Thus, 
     the income was subject to full inclusion to the U.S. 
     shareholder and, accordingly, subject to current U.S. 
     taxation. Second, during that three-year period, the 
     controlled foreign corporation must have, in the ordinary 
     course of its trade or business, entered into transactions in 
     which it regularly sold or paid commissions to a related FSC 
     (which also was in existence on September 30, 
     2000).40 If an electing corporation in this second 
     class ceases to be (directly or indirectly) wholly owned by 
     the domestic corporation that owns it on September 30, 2000, 
     the election to be treated as a domestic corporation is 
     terminated.
---------------------------------------------------------------------------
     \39\ The ultimate owner must be an actual domestic 
     corporation, not a corporation that elects to be treated as a 
     domestic corporation under the bill. In addition, although 
     the controlled foreign corporation must be wholly owned for 
     this purpose, it is intended that the mere nominal ownership 
     of an insignificant number of shares of insignificant value 
     (which may, for example, be required by foreign law) by 
     someone unrelated to the domestic parent would not cause the 
     controlled foreign corporation to fail to be wholly owned for 
     these purposes.
     \40\ It is intended that, if the controlled foreign 
     corporation's and related FSC's taxable years are still open 
     under the statute of limitations for claims for refund under 
     section 6511, redeterminations with respect to sales or 
     commissions paid to the FSC are permitted for this purpose. 
     See Temp. Treas. Reg. sec. 1.925(a)-1T(d)(4).
---------------------------------------------------------------------------
       Limitation on use of the gross receipts method
       Similar to the limitation on use of the gross receipts 
     method under the conference agreement's operative provisions, 
     the conference agreement provides a rule that limits the use 
     of the gross receipts method for transactions after the 
     effective date of the conference agreement if that same 
     property generated foreign trade income to a FSC using the 
     gross receipts method. Under the rule, if any person used the 
     gross receipts

[[Page H10962]]

     method under the FSC regime, neither that person nor any 
     related person will have qualifying foreign trade income with 
     respect to any other transaction involving the same item of 
     property.
       Coordination of new regime with prior law
       Notwithstanding the transition period, FSCs (or related 
     persons) may elect to have the rules of the conference 
     agreement apply in lieu of the rules applicable to FSCs. 
     Thus, for transactions to which the transition rules apply 
     (i.e., transactions after September 30, 2000 that occur (1) 
     before January 1, 2002 or (2) after December 31, 2001 
     pursuant to a binding contract which is in effect on 
     September 30, 2000), taxpayers may choose to apply either the 
     FSC rules or the amendments made by this bill, but not both. 
     In addition, a taxpayer would not be able to avail itself of 
     the rules of the conference agreement in addition to the 
     rules applicable to domestic international sales corporations 
     because the conference agreement provides that the exclusion 
     of extraterritorial income will not apply if a taxpayer is a 
     member of any controlled group of which a domestic 
     international sales corporation is a member.

             TITLE II. SMALL BUSINESS TAX RELIEF PROVISIONS

 A. Extension of the Work Opportunity Tax Credit (sec. 201 of the bill 
                        and sec. 51 of the Code)


                              Present Law

       The work opportunity tax credit (``WOTC'') is available on 
     an elective basis for employers hiring individuals from one 
     or more of eight targeted groups. The credit generally is 
     equal to 25 percent of qualified first-year wages for 
     employment of at least 120 hours but less than 400 hours and 
     40 percent of qualified first-year wages for employment of 
     400 hours or more. Qualified first-year wages consist of 
     wages attributable to service rendered by a member of a 
     targeted group during the one-year period beginning with the 
     day the individual begins work for the employer.
       No more than $6,000 of wages during the first year of 
     employment is permitted to be taken into account with respect 
     to any individual. Thus, the maximum credit per individual is 
     $2,400. With respect to qualified summer youth employees, the 
     maximum credit is 40 percent of up to $3,000 of qualified 
     first-year wages, for a maximum credit of $1,200. The credit 
     is only effective for wages paid to, or incurred with respect 
     to, qualified individuals who begin work for the employer 
     before January 1, 2002.
       The employer's deduction for wages is reduced by the amount 
     of the credit.


                               House Bill

       No provision.


                            Senate Amendment

       No provision. However, H.R. 833, as passed by the Senate, 
     permanently extends the WOTC.
       Effective date.--The provision is effective for wages paid 
     to, or incurred with respect to, qualified individuals who 
     begin work for the employer on or after July 1, 1999. 
     Subsequent to Senate passage of H.R. 833, Public Law 106-170 
     extended the WOTC for 30 months (through December 31, 2001) 
     and clarified the definition of the first year of employment 
     for purposes of the WOTC.


                          Conference Agreement

       The conference agreement extends the WOTC for 30 months 
     (through June 30, 2004). It is effective for wages paid to, 
     or incurred with respect to, qualified individuals who begin 
     work for the employer on or after January 1, 2002, and before 
     July 1, 2004.

  B. Increase the Maximum Dollar Amount of Reforestation Expenditures 
 Eligible for Amortization and Credit (sec. 202 of the bill and secs. 
                       48(b) and 194 of the Code)


                              Present Law

     Amortization of reforestation costs (sec. 194)
       A taxpayer may elect to amortize up to $10,000 ($5,000 in 
     the case of a separate return by a married individual) of 
     qualifying reforestation expenditures incurred during the 
     taxable year with respect to qualifying timber property. 
     Amortization is taken over 84 months (seven years) and is 
     subject to a mandatory half-year convention.41 In 
     the case of an individual, the amortization deduction is 
     allowed in determining adjusted gross income (i.e., an 
     ``above-the-line deduction'') rather than as an itemized 
     deduction. The amount eligible for amortization has not been 
     increased since the election was added to the Code in 
     1980.42
---------------------------------------------------------------------------
     \41\ Under the half-year convention, all reforestation 
     expenditures are considered to be incurred on the first day 
     of the first month of the second half of the taxable year. 
     Thus, an amortization deduction equal to \6/84\ of the 
     expenditures for the year is allowed in the first and eighth 
     years and an amortization deduction equal to \1/7\ (\12/84\) 
     of such expenditures is allowed in the second through seventh 
     years.
     \42\ Sec. 301(a) of the Multiemployer Pension Plan Amendments 
     Act of 1980.
---------------------------------------------------------------------------
       Qualifying reforestation expenditures are the direct costs 
     a taxpayer incurs in connection with the forestation or 
     reforestation of a site by planting or seeding, and include 
     costs for the preparation of the site, the cost of the seed 
     or seedlings, and the cost of the labor and tools (including 
     depreciation of long lived assets such as tractors and other 
     machines) used in the reforestation activity. Qualifying 
     reforestation expenditures do not include expenditures that 
     would otherwise be deductible and do not include costs for 
     which the taxpayer has been reimbursed under a governmental 
     cost sharing program, unless the amount of the reimbursement 
     is also included in the taxpayer's gross income.
       Qualifying timber property includes any woodlot or other 
     site that is located in the United States that will contain 
     trees in significant commercial quantities and that is held 
     by the taxpayer for the planting, cultivating, caring for, 
     and cutting of trees for sale or use in the commercial 
     production of timber products. The regulations require that 
     the site consist of at least one acre that is devoted to such 
     activities.43 A taxpayer may hold qualifying 
     timber property in fee or by lease. Where the property is 
     held by one person for life with the remainder to another 
     person, the life tenant is considered the owner of the 
     property for this purpose.
---------------------------------------------------------------------------
     \43\ Treas. Reg. sec. 1.194-3(a).
---------------------------------------------------------------------------
       Reforestation amortization is subject to recapture as 
     ordinary income on sale of qualifying timber property within 
     10 years of the year in which the qualifying reforestation 
     expenditures were incurred.44
---------------------------------------------------------------------------
     \44\ Sec. 1245(b)(7); Treas. Reg. sec. 1.194-1(c).
---------------------------------------------------------------------------
     Reforestation tax credit (sec. 48(b))
       A tax credit is allowed equal to 10 percent of the 
     reforestation expenditures incurred during the year that are 
     properly elected to be amortized. An amount allowed as a 
     credit is subject to recapture if the qualifying timber 
     property to which the expenditure relates is disposed of 
     within five years.
     House Bill
       No provision, but H.R. 3081 as passed by the House 
     increases the amount of reforestation expenditures eligible 
     for seven-year amortization and the reforestation credit from 
     $10,000 to $25,000 per taxable year (from $5,000 to $12,500 
     in the case of a separate return by a married individual).
       For taxable years beginning in 2001 through 2003, H.R. 3081 
     removes the limitation on the amount of expenditures eligible 
     for seven-year amortization.
       Effective date.--The provision is effective for 
     expenditures paid or incurred in taxable years beginning 
     after December 31, 2000. For taxable years beginning in 2001, 
     2002, and 2003, the amount of reforestation expenditures 
     eligible for the credit is limited to $25,000 and no limit 
     applies to the amount of expenditures eligible for seven-year 
     amortization. For taxable years beginning after 2003, the 
     amount of reforestation expenditures eligible for seven-year 
     amortization and for the credit is limited to $25,000.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement includes the provision in H.R. 
     3081.

 C. Capital Gains Treatment Under Section 631(b) to Apply to Outright 
 Sales of Timber (sec. 202(c) of the bill and sec. 631(b) of the Code)


                              Present Law

       Gain on the cutting and sale of timber generally is 
     eligible for capital gains treatment, provided the growing 
     timber has been held for more than one year. If the taxpayer 
     sells the timber at the time it is cut, the capital gain is 
     measured as the difference between the sales price of the 
     timber less cost of sales and any unrecovered costs of 
     growing the timber.
       If the taxpayer sells the timber prior to its being cut, a 
     special rule allows the taxpayer to treat the sale as a 
     capital gain, provided the taxpayer retains an economic 
     interest in the timber and holds the timber for more than one 
     year prior to the date of disposal. The date of disposal is 
     deemed to be the date the timber is cut, unless the taxpayer 
     receives payment for the timber prior to the date it is cut 
     and elects to treat the date of payment as the date of 
     disposal.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       In the case of a sale of timber by the owner of the land 
     from which the timber is cut, the requirement that a taxpayer 
     retain an economic interest in the timber in order to treat 
     gains on sales prior to the time the timber is cut as capital 
     gains does not apply. Outright sales of timber by the 
     landowner will qualify for capital gains treatment in the 
     same manner as sales with a retained economic interest 
     qualify under present law, except that the date-of-disposal 
     rule will not apply.
       Effective date.--The provision is effective for sales of 
     timber after the date of enactment.

 D. Increase Section 179 Expensing (sec. 1203 of the bill and sec. 179 
                              of the Code)


                              Present Law

       Present law provides that, in lieu of depreciation, a 
     taxpayer with a sufficiently small amount of annual 
     investment may elect to deduct up to $20,000 (for taxable 
     years beginning in 2000) of the cost of qualifying property 
     placed in service for the taxable year (sec. 179). In 
     general, qualifying property is defined as depreciable 
     tangible personal property that is purchased for use in the 
     active conduct of a trade or business. The $20,000 amount is 
     reduced (but not below zero) by the amount by which the cost 
     of qualifying property placed in service during the taxable 
     year exceeds $200,000. In addition, the amount eligible to be 
     expensed for a taxable year may not exceed the taxable income

[[Page H10963]]

     for a taxable year that is derived from the active conduct of 
     a trade or business (determined without regard to this 
     provision). Any amount that is not allowed as a deduction 
     because of the taxable income limitation may be carried 
     forward to succeeding taxable years (subject to similar 
     limitations).
       The $20,000 amount is increased to $25,000 for taxable 
     years beginning in 2003 and thereafter. The increase is 
     phased in as follows: for taxable years beginning in 2001 or 
     2002, the amount is $24,000; and for taxable years beginning 
     in 2003 and thereafter, the amount is $25,000.


                               House Bill

       No provision. However, H.R. 3081, as passed by the House, 
     provides that the maximum dollar amount that may be deducted 
     under section 179 is increased to $30,000 for taxable years 
     beginning in 2001 and thereafter.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                            Senate Amendment

       No provision. However, H.R. 833, as passed by the Senate, 
     includes a provision identical to the provision of H.R. 3081, 
     as passed by the House.


                          Conference Agreement

       The conference agreement includes the provision in H.R. 
     3081 and H.R. 833, with a modification. Under the conference 
     agreement, the maximum dollar amount that may be deducted 
     under section 179 is increased to $35,000 for taxable years 
     beginning in 2001 and thereafter.

E. Increase Deduction for Business Meals (sec. 204 of the bill and sec. 
                          274(n) of the Code)


                              Present Law

       Ordinary and necessary business expenses, as well as 
     expenses incurred for the production of income, are generally 
     deductible, subject to a number of restrictions and 
     limitations (secs. 162 and 212). No deduction generally is 
     allowed for personal, living, or family expenses (sec. 262).
       Meal and entertainment expenses incurred for business 
     reasons or for the production of income are deductible if 
     certain legal and substantiation requirements are met. 
     Generally, the amount allowable as a deduction for business 
     meal and entertainment expenses is limited to 50 percent of 
     the otherwise deductible amount (sec. 274(n)). Exceptions to 
     this 50-percent rule are provided for food and beverages 
     provided to crew members of certain vessels and off-shore oil 
     or gas platforms or drilling rigs, as well as to individuals 
     subject to the hours of service limitations of the Department 
     of Transportation. No deduction is allowed for meal or 
     beverage expenses unless they are not lavish or extravagant 
     under the circumstances (sec. 274(k)(1)(A)). In addition, no 
     deduction is allowed for amounts paid or incurred for 
     membership in any club organized for business, pleasure, 
     recreation, or other social purpose (sec. 274(a)(3)).
       An expense for food or beverages is not deductible unless 
     the taxpayer establishes that the item was directly related 
     to the ``active conduct'' of the taxpayer's trade or business 
     or, in the case of an item directly preceding or following a 
     substantial and bona fide business discussion, that the item 
     was ``associated with'' the active conduct of the taxpayer's 
     trade or business (sec. 274(a)(1)(A)). Accordingly, a 
     business meal expense generally is not deductible unless 
     there is a substantial and bona fide business discussion 
     during, directly preceding, or directly following the meal. 
     Also, the taxpayer or an employee of the taxpayer must be 
     present at the meal (sec. 274(k)(1)(B)).
       Separate requirements apply to deductions with respect to 
     individuals who are traveling away from home in pursuit of a 
     trade or business. The absence of a business discussion is 
     irrelevant for purposes of the ``active conduct'' and 
     ``associated with'' tests described above if the individual 
     either has the meal alone or has the meal with other persons 
     provided that no deduction is claimed with respect to those 
     other persons.
       No deduction is allowed with respect to business meal and 
     entertainment expenses unless the taxpayer substantiates by 
     adequate records or by sufficient evidence corroborating the 
     taxpayer's own statement (1) the amount of the expense, (2) 
     the time and place of the expense, (3) the business purpose 
     of the expense, and (4) the business relationship of the 
     taxpayer to the persons entertained (sec. 274(d)). The Code 
     authorizes the IRS to provide simpler rules for amounts below 
     a threshold specified by the IRS. Accordingly, the IRS 
     provides standard meal allowances (generally $30 per day, but 
     higher in specified high-cost areas and for employees ``in 
     the transportation industry'') that taxpayers who are 
     traveling away from home on business may utilize as an 
     alternative to the substantiation procedures specified above 
     (Treas. Reg. sec. 1.274(d)-1T).


                               house bill

       No provision. However, H.R. 3081, as passed by the House, 
     increases the business meals deduction from the present-law 
     50 percent to 55 percent for taxable years beginning in 2001 
     and to 60 percent for taxable years beginning in 2002 and 
     thereafter. The bill does not alter the 50-percent limitation 
     with respect to the business entertainment deduction.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                            Senate amendment

       No provision. However, H.R. 833, as passed by the Senate, 
     phases in an increase from 50 percent to 80 percent in the 
     deductible percentage of business meal expense for small 
     businesses. The present-law 50 percent limitation continues 
     to apply to entertainment expenses. The increase in the 
     deductible percentage is phased in according to the following 
     schedule:

                                                             Deductible
        Taxable years beginning in:                         percentage:
    2001.............................................................55
    2002.............................................................60
    2003.............................................................65
    2004.............................................................70
    2005.............................................................75
    2006 and thereafter..............................................80

       Effective date.--The provision is effective for taxable 
     years beginning after 2000.


                          conference agreement

       The conference agreement increases the business meals 
     deduction from the present-law 50 percent to 70 percent for 
     taxable years beginning after December 31, 2000.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.

    F. Increased Deduction for Business Meals While Operating Under 
Department of Transportation Hours of Service Limitations (sec. 205 of 
                 the bill and sec. 274(n) of the Code)


                              present law

       Ordinary and necessary business expenses, as well as 
     expenses incurred for the production of income, are generally 
     deductible, subject to a number of restrictions and 
     limitations. Generally, the amount allowable as a deduction 
     for food and beverage is limited to 50 percent of the 
     otherwise deductible amount. Exceptions to this 50 percent 
     rule are provided for food and beverages provided to crew 
     members of certain vessels and offshore oil or gas platforms 
     or drilling rigs.
       The 1997 Act increased to 80 percent the deductible 
     percentage of the cost of food and beverages consumed while 
     away from home by an individual during, or incident to, a 
     period of duty subject to the hours of service limitations of 
     the Department of Transportation.
       Individuals subject to the hours of service limitations of 
     the Department of Transportation include:
       (1) certain air transportation employees such as pilots, 
     crew, dispatchers, mechanics, and control tower operators 
     pursuant to Federal Aviation Administration regulations,
       (2) interstate truck operators and interstate bus drivers 
     pursuant to Department of Transportation regulations,
       (3) certain railroad employees such as engineers, 
     conductors, train crews, dispatchers and control operations 
     personnel pursuant to Federal Railroad Administration 
     regulations, and
       (4) certain merchant mariners pursuant to Coast Guard 
     regulations.
       The increase in the deductible percentage is phased in 
     according to the following schedule:

                                                             Deductible
        Taxable years beginning in:                         percentage:
    1998, 1999.......................................................55
    2000, 2001.......................................................60
    2002, 2003.......................................................65
    2004, 2005.......................................................70
    2006, 2007.......................................................75
    2008 and thereafter..............................................80


                               house bill

       No provision. However, H.R. 3081, as passed by the House, 
     accelerates the increase in the deduction for business meals 
     while operating under Department of Transportation hours of 
     service limitations so that it becomes 80 percent in 2001 and 
     thereafter.
       Effective date.--The provision is effective for taxable 
     years beginning after 2000.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement includes the provision in H.R. 
     3081.

 G. Repeal of Modification of Installment Method (sec. 206 of the bill 
                  and secs. 453 and 453A of the Code)


                              present law

       The installment method of accounting allows a taxpayer to 
     defer the recognition of income from the disposition of 
     certain property until payment is received. Sales to 
     customers in the ordinary course of business are not eligible 
     for the installment method, except for sales of property that 
     is used or produced in the trade or business of farming and 
     sales of timeshares and residential lots if an election to 
     pay interest under section 453(l)(2)(B) is made. Section 
     536(a) of the Ticket to Work and Work Incentives Improvement 
     Act of 1999 prohibited the use of the installment method for 
     a transaction that would otherwise be required to be reported 
     using the accrual method of accounting, effective for 
     dispositions occurring on or after December 17, 1999.
       A pledge rule provides that if an installment obligation is 
     pledged as security for any indebtedness, the net proceeds 
     45 of such indebtedness are treated as a payment 
     on the obligation, triggering the recognition of income. 
     Actual payments received on the installment obligation 
     subsequent to the receipt of the loan proceeds are not taken 
     into

[[Page H10964]]

     account until such subsequent payments exceed the loan 
     proceeds that were treated as payments. The pledge rule does 
     not apply to sales of property used or produced in the trade 
     or business of farming, to sales of timeshares and 
     residential lots where the taxpayer elects to pay interest 
     under section 453(l)(2)(B), or to dispositions where the 
     sales price does not exceed $150,000. The Ticket to Work and 
     Work Incentives Improvement Act of 1999 provided that the 
     right to satisfy a loan with an installment obligation will 
     be treated as a pledge of the installment obligation, 
     effective for dispositions occurring on or after December 17, 
     1999.
---------------------------------------------------------------------------
     \45\ The net proceeds equal the gross loan proceeds less the 
     direct expenses of obtaining the loan.
---------------------------------------------------------------------------


                               house bill

       No provision. However, H.R. 3081, as passed by the House, 
     repeals the prohibition on the use of the installment method 
     of accounting for dispositions of property that would 
     otherwise be reported for Federal income tax purposes using 
     the accrual method of accounting. Accordingly, any 
     disposition of property that otherwise qualifies to be 
     reported using the installment method of accounting may be 
     reported using that method without regard to whether the 
     disposition would otherwise be reported using the accrual 
     method of accounting.
       The provision leaves unchanged the rule added by section 
     536(b) of the Ticket to Work and Work Incentives Improvement 
     Act of 1999 that modified the installment method pledge rule.
       Effective date.--The provision is effective for sales or 
     other dispositions on or after December 17, 1999.


                            senate amendment

       No provision. However, H.R. 833, as passed by the Senate, 
     contains the provisions enacted in the Ticket to Work and 
     Work Incentives Improvement Act of 1999 prohibiting the use 
     of the installment method for a transaction that would 
     otherwise be required to be reported using the accrual method 
     of accounting and expanding the pledge rule.


                          conference agreement

       The conference agreement includes the provision in H.R. 
     3081.

     H. Coordinate Farmers and Fisherman Income Averaging and the 
Alternative Minimum Tax (sec. 207 of the bill and secs. 55 and 1301 of 
                               the Code)


                              present law

       An individual taxpayer engaged in a farming business as 
     defined by section 263A(e)(4) may elect to compute his or her 
     current year tax liability by averaging, over the prior 
     three-year period, all or portion of his or her taxable 
     income from the trade or business of farming. The averaging 
     election is not coordinated with the alternative minimum tax. 
     Thus, some farmers may become subject to the alternative 
     minimum tax solely as a result of the averaging election.


                               house bill

       No provision. However, H.R. 3081, as passed by the House, 
     extends to individuals engaged in the trade or business of 
     fishing the same election to income average that is available 
     to farmers. For this purpose, the trade or business of 
     fishing is the conduct of commercial fishing as defined in 
     section 3 of the Magnuson-Stevens Fishery Conservation and 
     Management Act (16 U.S.C. 1802) and includes the trade or 
     business of catching, taking, or harvesting fish that are 
     intended to enter commerce through sale, barter or trade.
       The bill also coordinates farmers and fishermen income 
     averaging with the alternative minimum tax. Under the bill, a 
     farmer or fisherman will owe alternative minimum tax only to 
     the extent he or she will owe alternative minimum tax had 
     averaging not been elected. This result is achieved by 
     excluding the impact of the election to average farm and 
     fishing income from the calculation of both regular tax and 
     tentative minimum tax, solely for the purpose of determining 
     alternative minimum tax.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                            senate amendment

       No provision. However, the provision of H.R. 3081 is 
     included in S. 3152.


                          conference agreement

       The conference agreement follows H.R. 3081 and S. 3152.

  I. Repeal Special Occupational Taxes on Producers and Marketers of 
 Alcoholic Beverages (sec. 208 of the bill and secs. 5081, 5091, 5111, 
                   5121, 5131, and 5276 of the Code)


                              Present Law

       Under present law, special occupational taxes are imposed 
     on producers and others engaged in the marketing of distilled 
     spirits, wine, and beer. These excise taxes are imposed as 
     part of a broader Federal tax and regulatory engine governing 
     the production and marketing of alcoholic beverages. The 
     special occupational taxes are payable annually, on July 1 of 
     each year. The present tax rates are as follows:
       Producers: Distilled spirits and wines (sec. 5081)--$1,000 
     per year, per premise, Brewers (sec. 5091)--$1,000 per year, 
     per premise.
       Wholesale dealers (sec. 5111): Liquors, wines, or beer--
     $500 per year.
       Retail dealers (sec. 5121): Liquors, wines, or beer--$250 
     per year.
       Nonbeverage use of distilled spirits (sec. 5131)--$500 per 
     year.
       Industrial use of distilled spirits (sec. 5276)--$250 per 
     year.


                               House Bill

       No provision, but H.R., 3081, as passed by the House 
     repeals the special occupational taxes on producers and 
     marketers of alcoholic beverages. The provision is effective 
     on July 1, 2001. The provision does not affect liability for 
     taxes imposed with respect to periods before July 1, 2001.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement includes the provision of H.R. 
     3081, as passed by the House.

     J. Exclusion from Gross Income for Certain Forgiven Mortgage 
      Obligations (sec. 209 of the bill and sec. 108 of the Code)


                              Present Law

       Gross income includes all income from whatever source 
     derived, including income from the discharge of indebtedness. 
     However, gross income does not include discharge of 
     indebtedness income if: (1) the discharge occurs in a Title 
     11 case; (2) the discharge occurs when the taxpayer is 
     insolvent; (3) the indebtedness discharged is qualified farm 
     indebtedness; or (4) except in the case of a C corporation, 
     the indebtedness discharged is qualified real property 
     business indebtedness. No exclusion is provided under present 
     law for qualified residential indebtedness.


                               House Bill

       No provision. However, H.R. 3081, as passed by the House, 
     permits eligible individuals to elect an exclusion from 
     discharge of indebtedness income to the extent such income is 
     attributable to the sale of real property securing qualified 
     residential indebtedness. Qualified residential indebtedness 
     is defined as indebtedness incurred or assumed by the 
     taxpayer for the acquisition, construction, reconstruction, 
     or substantial improvement of the taxpayer's principal 
     residence (within the meaning of section 121) and which is 
     secured by such residence. For this purpose, refinanced 
     indebtedness qualifies for the exclusion only to the extent 
     that the principal amount of the refinanced indebtedness does 
     not exceed the principal amount of the indebtedness before 
     the refinancing. The exclusion does not apply to qualified 
     farm indebtedness or qualified real property business 
     indebtedness.
       Effective date.--The provision is effective for discharges 
     of indebtedness after December 31, 2000.


                            Senate Amendment

       No provision. However, the provision of H.R. 3081 is 
     included in S. 3152.


                          Conference Agreement

       The conference agreement follows H.R. 3081 and S. 3152.

 K. Clarification of Cash Accounting Rules for Small Businesses (sec. 
               210 of the bill and sec. 446 of the Code)


                              Present Law

       Section 446(c) of the Code generally allows a taxpayer to 
     select the method of accounting it will use to compute its 
     taxable income if such method clearly reflects the income of 
     the taxpayer. A taxpayer is entitled to adopt any one of the 
     permissible methods for each separate trade or business, 
     subject to certain restrictions. The regulations under 
     section 446 require that a taxpayer use an accrual method of 
     accounting with regard to purchases and sales of merchandise 
     whenever section 471 requires the taxpayer to account for 
     such items as inventory. 46 In general, section 
     471 provides that whenever, in the opinion of the Secretary 
     of the Treasury, the use of inventories is necessary to 
     clearly determine the income of the taxpayer, inventories 
     must be taken by the taxpayer. Treas. Reg. sec. 1.471-1 
     requires a taxpayer to account for inventories when the 
     production, purchase, or sale of merchandise is an income-
     producing factor in the taxpayer's business. Treas. Reg. sec. 
     1.162-3 requires taxpayers carrying materials and supplies 
     (other than incidental materials and supplies) on hand to 
     deduct the cost of materials and supplies only in the amount 
     that they are actually consumed and used in operations during 
     the tax year.
---------------------------------------------------------------------------
     \46\ Treas. Reg. sec. 1.446-1(c)(2)
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement provides that, notwithstanding any 
     other provision of the Code, a taxpayer is not required to 
     use an accrual method of accounting if the average annual 
     gross receipts of the taxpayer (or any predecessor) do not 
     exceed $2.5 million for all prior taxable years beginning 
     after October 31, 1999 (including the prior taxable years of 
     any predecessor). Thus, even if the production, purchase, or 
     sale of merchandise is an income-producing factor in the 
     taxpayer's business, the taxpayer is not required to use an 
     accrual method of accounting with regard to such purchases 
     and sales if the average annual gross receipts of the 
     taxpayer do not exceed $2.5 million.
       The provision also provides that a taxpayer meeting the 
     average annual gross receipts test is not required to account 
     for inventories under section 471. If a taxpayer elects not 
     to account for inventory under section 471, the taxpayer is 
     required to treat

[[Page H10965]]

     such inventory in the same manner as a material or supply 
     that is not incidental. It is the intention of the conferees 
     that a taxpayer that elects to treat inventory as a material 
     or supply is to include in expense the charges for materials 
     and supplies only in the amount that they are actually 
     consumed and used in operation during the taxable year for 
     which the return is made, provided that the costs of such 
     materials and supplies have not been deducted in determining 
     the net income or loss or taxable income for any previous 
     year. 47
---------------------------------------------------------------------------
     \47\ See Treas. Reg. sec. 1.162-3.
---------------------------------------------------------------------------
       Average annual gross receipts are determined by averaging 
     the gross receipts of the three taxable year period ending 
     with such prior taxable year.
       For example, assume a calendar year entity had gross 
     receipts of $1.5 million in 1998, $2.5 million in 1999, $3.5 
     million in 2000, and $4.5 million in 2001. In addition, the 
     sale of inventory is an income-producing factor in the 
     taxpayer's business. Average annual gross receipts are $2.5 
     million in 2000 and $3.5 million in 2001. In calendar year 
     2001, the entity may use the cash method of accounting 
     notwithstanding that the production, purchase, or sale of 
     merchandise is an income-producing factor in the taxpayer's 
     trade or business, because it had average annual gross 
     receipts of $2.5 million or less for all prior taxable years. 
     In calendar year 2002, the entity may not use the cash method 
     of accounting with regard to purchases and sales of 
     merchandise, because average annual gross receipts for a 
     prior taxable year (2001) exceed $2.5 million.
       In addition, the rules of paragraph (2) and (3) section 
     448(c) (regarding the aggregation of related taxpayers, 
     taxpayers not in existence for the entire three year period, 
     short taxable years, definition of gross receipts, and 
     treatment of predecessors) shall apply for purposes of 
     determining the average annual gross receipts test.
       Effective date.--The provision is effective for taxable 
     years beginning after date of enactment. Any change in the 
     taxpayer's method of accounting permitted as a result of the 
     provision is treated as a voluntary change initiated by the 
     taxpayer with the consent of the Secretary of the Treasury. 
     Any required section 481(a) adjustment is to be taken into 
     account over a period not to exceed four years under 
     principles consistent with those in Rev. Proc. 99-
     49.48
---------------------------------------------------------------------------
     \48\ 1999-52 I.R.B. 725.
---------------------------------------------------------------------------

 L. Authorize Payment of Interest on Business Checking Accounts (sec. 
                            211 of the bill)

       The bill would eliminate the Federal prohibition on 
     depository institutions paying interest on demand deposits. 
     Thus, under the bill, depository institutions would be 
     permitted to pay interest on business checking accounts.
       Effective date.--The repeal of the prohibition on the 
     payment of interest would be effective two years after the 
     date of enactment. During the two year period beginning on 
     the date of enactment, the bill would permit depository 
     institutions to offer business customers checking accounts 
     that allow the funds in the account to be swept into an 
     interest-bearing account on a daily basis.

  TITLE III. HEALTH INSURANCE AND LONG-TERM CARE INSURANCE PROVISIONS

  A. Accelerate 100-Percent Self-Employed Health Insurance Deduction 
           (sec. 301 of the bill and sec. 162(l) of the Code)


                              Present Law

       Under present law, the individual income tax treatment of 
     health insurance expenses depends on the individual's 
     circumstances. Self-employed individuals may deduct a portion 
     of health insurance expenses for the individual and his or 
     her spouse and dependents. The deductible percentage of 
     health insurance expenses of a self-employed individual is 60 
     percent in 2000 through 2001, 70 percent in 2002, and 100 
     percent in 2003 and thereafter. The deduction for health 
     insurance expenses of self-employed individuals is not 
     available for any month in which the taxpayer is eligible to 
     participate in a subsidized health plan maintained by the 
     employer of the taxpayer or the taxpayer's spouse.
       Employees can exclude from income 100 percent of employer-
     provided health insurance.
       Individuals who itemize deductions may deduct their health 
     insurance expenses only to the extent that the total medical 
     expenses of the individual exceed 7.5 percent of adjusted 
     gross income (sec. 213). Subject to certain dollar 
     limitations, premiums for qualified long-term care insurance 
     are treated as medical expenses for purposes of the itemized 
     deduction for medical expenses (sec. 213). The amount of 
     qualified long-term care insurance premiums that may be taken 
     into account for 2000 is as follows: $220 in the case of an 
     individual 40 years old or less; $410 in the case of an 
     individual who is over 40 but not more than 50; $820 in the 
     case of an individual who is more than 50 but not more than 
     60; $2,220 in the case of an individual who is more than 60 
     but not more than 70; and $2,750 in the case of an individual 
     who is more than 70. These dollar limits are indexed for 
     inflation.
       The self-employed health deduction also applies to 
     qualified long-term care insurance premiums treated as 
     medical care for purposes of the itemized deduction for 
     medical expenses.


                               House Bill

       No provision. However, H.R. 3081, as passed by the House, 
     increases the deduction for health insurance expenses (and 
     qualified long-term care insurance expenses) of self-employed 
     individuals to 100 percent beginning in 2001. H.R. 3081 also 
     provides that the deduction is not available in any month in 
     which the taxpayer participates in an employer-subsidized 
     health plan.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                            Senate Amendment

       No provision. However, H.R. 833, as passed by the Senate, 
     increases the deduction for health insurance expenses (and 
     qualified long-term care insurance expenses) of self-employed 
     individuals to 100 percent beginning in 2001.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                          Conference Agreement

       The conference agreement includes the provision in H.R. 
     3081.

B. Above-the-Line Deduction for Health Insurance Expenses (sec. 302 of 
                 the bill and new sec. 222 of the Code)


                              Present Law

       Under present law, the individual income tax treatment of 
     health insurance expenses depends on the individual's 
     circumstances. Self-employed individuals may deduct a portion 
     of health insurance expenses for the individual and his or 
     her spouse and dependents. The deductible percentage of 
     health insurance expenses of a self-employed individual is 60 
     percent in 2000 and 2001; 70 percent in 2002; and 100 percent 
     in 2003 and thereafter. The deduction for health insurance 
     expenses of self-employed individuals is not available for 
     any month in which the taxpayer is eligible to participate in 
     a subsidized health plan maintained by the employer of the 
     taxpayer or the taxpayer's spouse. The deduction applies to 
     qualified long-term care insurance premiums treated as 
     medical expenses under the itemized deduction for medical 
     expenses, described below.
       Employees can exclude from income 100 percent of employer-
     provided health insurance or qualified long-term care 
     insurance.
       Individuals who itemize deductions may deduct their health 
     insurance expenses only to the extent that the total medical 
     expenses of the individual exceed 7.5 percent of adjusted 
     gross income (sec. 213). Subject to certain dollar 
     limitations, premiums for qualified long-term care insurance 
     are treated as medical expenses for purposes of the itemized 
     deduction for medical expenses (sec. 213). The amount of 
     qualified long-term care insurance premiums that may be taken 
     into account for 2000 is as follows: $220 in the case of an 
     individual 40 years old or less; $410 in the case of an 
     individual who is more than 40 but not more than 50; $820 in 
     the case of an individual who is more than 50 but not more 
     than 60; $2,200 in the case of an individual who is more than 
     60 but not more than 70; and $2,750 in the case of an 
     individual who is more than 70. These dollar limits are 
     indexed for inflation.


                               House Bill

       No provision.


                            Senate Amendment

       No provision. However, H.R. 833, as passed by the Senate, 
     provides an above-the-line deduction for a percentage of the 
     amount paid during the year for insurance which constitutes 
     medical care (as defined under sec. 213, other than long-term 
     care insurance treated as medical care under sec. 213) for 
     the taxpayer and his or her spouse and 
     dependents.49 The deductible percentage is: 25 
     percent in 2002, 2003, and 2004; 35 percent in 2005; 65 
     percent in 2006; and 100 percent in 2007 and thereafter.
---------------------------------------------------------------------------
     \49\ The deduction only applies to health insurance that 
     constitutes medical care; it does not apply to medical 
     expenses. The deduction applies to self-insured arrangements 
     (provided such arrangements constitute insurance, e.g., there 
     is appropriate risk-shifting) and coverage under employer 
     plans treated as insurance under section 104. Another 
     provision of the bill provides a similar deduction for 
     qualified long-term care insurance expenses.
---------------------------------------------------------------------------
       The deduction is not available to an individual for any 
     month in which the individual is covered under an employer-
     sponsored health plan if at least 50 percent of the cost of 
     the coverage is paid or incurred by the 
     employer.50 Thus, the individual must pay for more 
     than 50 percent of the cost of the coverage in order to be 
     eligible for the deduction. For purposes of this rule, any 
     amount excludable from the gross income of the employee under 
     the exclusion for employer-provided health coverage is 
     treated as paid or incurred by the employer; thus, for 
     example, health insurance purchased by an employee through a 
     cafeteria plan with salary reduction amounts is considered to 
     be paid for by the employer.51 In determining 
     whether the 50-percent threshold is met, all health plans of 
     the employer in which the employee participates are treated 
     as a single plan. If the employer pays for less than 50

[[Page H10966]]

     percent of the cost of all health plans in which the 
     individual participates, the deduction is available only with 
     respect to each plan with respect to which the employer 
     subsidy is less than 50 percent. Cost is determined as under 
     the health care continuation rules.
---------------------------------------------------------------------------
     \50\ This rule is applied separately with respect to 
     qualified long-term care insurance.
     \51\ Excludable employer contributions to a health flexible 
     spending arrangement or medical savings account (including 
     salary reduction contributions) are also considered amounts 
     paid by the employer for health insurance that constitutes 
     medical care. Salary reduction contributions are not 
     considered to be amounts paid by the employee.
---------------------------------------------------------------------------
       The deduction is not available with respect to insurance 
     providing coverage for accidents, disability, dental care, 
     vision care, or a specific disease or making payments of a 
     fixed amount per day (or other period) on account of 
     hospitalization. Such insurance and employer payments for 
     such insurance are not taken into account in determining 
     whether the employee pays for more than 50 percent of the 
     cost of health insurance.
       The deduction is not available to individuals enrolled in 
     Medicare, Medicaid, the Federal Employees Health Benefit 
     Program (``FEHBP''),52 Champus, VA, Indian Health 
     Service, or Children's Health Insurance programs. Thus, for 
     example, the deduction is not available with respect to 
     Medigap coverage, because such coverage is provided to 
     individuals enrolled in Medicare.
---------------------------------------------------------------------------
     \52\ This rule does not prevent individuals covered by the 
     FEHBP from deducting premiums for health care continuation 
     coverage, provided the requirements for the deduction are 
     otherwise met.
---------------------------------------------------------------------------
       The provision authorizes the Secretary to prescribe rules 
     necessary to carry out the provision, including appropriate 
     reporting requirements for employers.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2001.


                          Conference Agreement

       The conference agreement includes the provision in H.R. 
     833, except that the deductible percentage is 25 percent in 
     2001 through 2003, 35 percent in 2004, 65 percent in 2005, 
     and 100 percent in 2006 and thereafter.
       The following examples illustrate the application of the 
     rule denying the deduction if the employer pays 50 percent or 
     more of the cost of the coverage.
       Example 1: Employee A participates in an employer-sponsored 
     health plan. The annual cost for single coverage is $3,000, 
     and the annual additional cost for coverage for A's spouse 
     and dependents is $1,000. The employer pays 100 percent of 
     the cost of individual coverage, but does not pay any 
     additional amount for family coverage. A chooses family 
     coverage. The total amount the employer pays for the 
     insurance is $3,000, which is 75 percent of the total cost of 
     the coverage ($4,000). A also purchases qualified long-term 
     care insurance under an employer-sponsored plan, and pays for 
     100 percent of the cost of this coverage on an after-tax 
     basis. The deduction is not available with respect to A's 
     expenses for health insurance.53
---------------------------------------------------------------------------
     \53\ Under another provision of the bill, a deduction is 
     available with respect to A's qualified long-term care 
     insurance premiums.
---------------------------------------------------------------------------
       Example 2: Employee B participates in two employer-
     sponsored health plans. One plan provides major medical 
     coverage. The cost of this plan is $2,000 per year. The 
     employer pays one-half of the cost of this plan. The second 
     plan provides only dental insurance. The cost of the dental 
     plan is $300 per year, which is paid by the employee. In 
     determining whether B is entitled to the deduction, the 
     dental plan is disregarded. Thus, the total cost of the 
     health plans in which B participates is $2,000. The employer 
     pays for 50 percent of this total cost. B may not deduct her 
     share of the premium for the major medical plan, nor the cost 
     of the dental insurance.
       Example 3: Employee C participates in an employer-sponsored 
     health plan. The cost of the plan is $4,000. The employer 
     pays $1,000 of the cost of the plan directly, and Employee C 
     pays the remainder of the $3,000 cost of the plan by salary 
     reduction through a cafeteria plan. The $1,000 employer 
     contribution and the $3,000 salary reduction contributions 
     are all employer payments. Thus, the employer pays for the 
     entire cost of the plan, and the deduction is not available.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.

   C. Above-the-Line Deduction for Long-Term Care Insurance Expenses 
     (secs. 1302 and 1304 of the bill and new sec. 222 of the Code)


                              Present Law

       Under present law, the individual income tax treatment of 
     health insurance expenses depends on the individual's 
     circumstances. Self-employed individuals may deduct a portion 
     of health insurance expenses for the individual and his or 
     her spouse and dependents. The deductible percentage of 
     health insurance expenses of a self-employed individual is 60 
     percent in 2000 and 2001; 70 percent in 2002; and 100 percent 
     in 2003 and thereafter. The deduction for health insurance 
     expenses of self-employed individuals is not available for 
     any month in which the taxpayer is eligible to participate in 
     a subsidized health plan maintained by the employer of the 
     taxpayer or the taxpayer's spouse. The deduction applies to 
     qualified long-term care insurance premiums treated as 
     medical expenses under the itemized deduction for medical 
     expenses, described below.
       Employees can exclude from income 100 percent of employer-
     provided health insurance or qualified long-term care 
     insurance.
       Individuals who itemize deductions may deduct their health 
     insurance expenses only to the extent that the total medical 
     expenses of the individual exceed 7.5 percent of adjusted 
     gross income (sec. 213). Subject to certain dollar 
     limitations, premiums for qualified long-term care insurance 
     are treated as medical expenses for purposes of the itemized 
     deduction for medical expenses (sec. 213). The amount of 
     qualified long-term care insurance premiums that may be taken 
     into account for 2000 is as follows: $220 in the case of an 
     individual 40 years old or less; $410 in the case of an 
     individual who is more than 40 but not more than 50; $820 in 
     the case of an individual who is more than 50 but not more 
     than 60; $2,200 in the case of an individual who is more than 
     60 but not more than 70; and $2,750 in the case of an 
     individual who is more than 70. These dollar limits are 
     indexed for inflation.
       In order for a long-term care contract to be qualified for 
     purposes of the Code, the contract must satisfy certain 
     consumer protection provisions of the long-term care 
     insurance model act and regulations promulgated by the 
     National Association of Insurance Commissioners (``NAIC'') 
     adopted as of January 1993. In addition, issuers of qualified 
     long-term care contracts are required to satisfy certain 
     disclosure requirements. An excise tax is imposed with 
     respect to the failure to meet the applicable disclosure 
     requirements.54
---------------------------------------------------------------------------
     \54\ These provisions apply for all provisions of the Code 
     relating to qualified long-term care contracts, not only the 
     above-the-line deduction.
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       No provision. However, H.R. 833, as passed by the Senate, 
     provides an above-the-line deduction for a percentage of the 
     amount paid during the year for qualified long-term care 
     insurance for the taxpayer and his or her spouse and 
     dependents, subject to the present-law premium 
     limitations.55 The deductible percentage is: 25 
     percent in 2002, 2003, and 2004; 35 percent in 2005; 65 
     percent in 2006; and 100 percent in 2007 and thereafter.
---------------------------------------------------------------------------
     \55\ The deduction only applies to insurance that constitutes 
     medical care; it does not apply to long-term care expenses. 
     The deduction applies to self-insured arrangements (provided 
     such arrangements constitute insurance, e.g., there is 
     appropriate risk-shifting) and coverage under employer plans 
     treated as insurance under section 104. Another provision of 
     the bill provides a similar deduction for health insurance 
     expenses.
---------------------------------------------------------------------------
       The deduction is not available to an individual for any 
     month in which the individual is covered under an employer-
     sponsored long-term care plan if at least 50 percent of the 
     cost of the coverage is paid or incurred by the 
     employer.56 For purposes of this rule, any amounts 
     excludable from the gross income of the employee with respect 
     to qualified long-term care insurance are treated as paid or 
     incurred by the employer. In determining whether the 50-
     percent threshold is met, all plans of the employer providing 
     long-term care insurance in which the employee participates 
     are treated as a single plan. If the employer pays less than 
     50 percent of the cost of all long-term care plans in which 
     the individual participates, the deduction is available only 
     with respect to each plan with respect to which the employer 
     pays for less than 50 percent of the cost. Cost is determined 
     as under the health care continuation rules.
---------------------------------------------------------------------------
     \56\ This rule is applied separately with respect to health 
     insurance.
---------------------------------------------------------------------------
       The provision authorizes the Secretary to prescribe rules 
     necessary to carry out the provision, including appropriate 
     reporting requirements for employers.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2001.


                          Conference Agreement

       The conference agreement includes the provision in H.R. 
     833, except that the deductible percentage is 25 percent in 
     2001 through 2003, 35 percent in 2004, 65 percent in 2005, 
     and 100 percent in 2006 and thereafter.57
---------------------------------------------------------------------------
     \57\ See the description of the above-the-line deduction for 
     health insurance expenses for examples of the operation of 
     the rule denying the deduction if the employer pays for 50 
     percent or more of the cost of the coverage.
---------------------------------------------------------------------------
       The conference agreement adds additional consumer 
     protection provisions for qualified long-term care contracts. 
     In order to be a qualified contract for purposes of the Code, 
     a long-term care insurance contract must satisfy the NAIC 
     model act and regulations relating to contingent 
     nonforfeiture benefits, if the policyholder declines the 
     offer of a nonforfeiture provision. In addition, the 
     conference agreement modifies the disclosure requirements 
     applicable to issuers of long-term care contracts by adding 
     the NAIC requirements regarding suitability and disclosure of 
     rating practices. The conference agreement also updates 
     present-law references to the NAIC model act and regulations 
     to reflect current provisions.
       Effective date.--The above-the-line deduction is effective 
     for taxable years beginning after December 31, 2000. The 
     consumer protection provisions are effective with respect to 
     policies issued more than 1 year after the date of enactment.

 D. Medical Savings Accounts (``MSAs'') (sec. 303 of the bill and sec. 
                            220 of the Code)


                              Present Law

       Within limits, contributions to a medical savings account 
     (``MSA'') 58 are deductible in

[[Page H10967]]

     determining adjusted gross income (``AGI'') if made by an 
     eligible individual and are excludable from gross income and 
     wages for employment tax purposes if made by the employer of 
     an eligible individual. Earnings on amounts in an MSA are not 
     currently taxable. Distributions from an MSA for medical 
     expenses are not taxable. Distributions not used for medical 
     expenses are taxable. In addition, distributions not used for 
     medical expenses are subject to an additional 15-percent tax 
     unless the distribution is made after age 65, death, or 
     disability.
---------------------------------------------------------------------------
     \58\ In general, an MSA is a trust or custodial account 
     created exclusively for the benefit of the account holder and 
     is subject to rules similar to those applicable to individual 
     retirement arrangements. The trustee of an MSA can be a bank, 
     insurance company, or other person who demonstrates to the 
     satisfaction of the Secretary that the manner in which such 
     person will administer the trust will be consistent with 
     applicable requirements.
---------------------------------------------------------------------------
       MSAs are available to self-employed individuals 
     59 and to employees covered under an employer-
     sponsored high deductible plan of a small employer. An 
     employer is a small employer if it employed, on average, no 
     more than 50 employees on business days during either the 
     preceding or the second preceding year.
---------------------------------------------------------------------------
     \59\ Self-employed individuals include more than 2-percent 
     shareholders of S corporations who are treated as partners 
     for purposes of fringe benefit rules pursuant to section 
     1372. Self-employed individuals are eligible for an MSA 
     regardless of the size of the entity for which the individual 
     performs services.
---------------------------------------------------------------------------
       In order for an employee of a small employer to be eligible 
     to make MSA contributions (or to have employer contributions 
     made on his or her behalf), the employee must be covered 
     under an employer-sponsored high deductible health plan (see 
     the definition below) and must not be covered under any other 
     health plan (other than a plan that provides certain 
     permitted coverage).
       Similarly, in order to be eligible to make contributions to 
     an MSA, a self-employed individual must be covered under a 
     high deductible health plan and no other health plan (other 
     than a plan that provides certain permitted coverage, 
     described below). A self-employed individual is not an 
     eligible individual (by reason of being self-employed) if the 
     high deductible plan under which the individual is covered is 
     established or maintained by an employer of the individual 
     (or the individual's spouse).
       The maximum annual contribution that can be made to an MSA 
     for a year is 65 percent of the deductible under the high 
     deductible plan in the case of individual coverage and 75 
     percent of the deductible in the case of family coverage.
       A high deductible plan is a health plan with an annual 
     deductible of at least $1,550 and no more than $2,350 in the 
     case of individual coverage and at least $3,100 and no more 
     than $4,650 in the case of family coverage. In addition, the 
     maximum out-of-pocket expenses with respect to allowed costs 
     (including the deductible) must be no more than $3,100 in the 
     case of individual coverage and no more than $5,700 in the 
     case of family coverage.60 A plan does not fail to 
     qualify as a high deductible plan merely because it does not 
     have a deductible for preventive care as required by State 
     law. A plan does not qualify as a high deductible health plan 
     if substantially all of the coverage under the plan is for 
     permitted coverage (as described above). In the case of a 
     self-insured plan, the plan must in fact be insurance (e.g., 
     there must be appropriate risk shifting) and not merely a 
     reimbursement arrangement.
---------------------------------------------------------------------------
     \60\ These dollar amounts are for 2000. These amounts are 
     indexed for inflation in $50 increments.
---------------------------------------------------------------------------
       The number of taxpayers benefiting annually from an MSA 
     contribution is limited to a threshold level (generally 
     750,000 taxpayers). If it is determined in a year that the 
     threshold level has been exceeded (called a ``cut-off'' year) 
     then, in general, for succeeding years during the 4-year 
     pilot period 1997-2000, only those individuals who (1) made 
     an MSA contribution or had an employer MSA contribution for 
     the year or a preceding year (i.e., are active MSA 
     participants) or (2) are employed by a participating 
     employer, is eligible for an MSA contribution. In determining 
     whether the threshold for any year has been exceeded, MSAs of 
     individuals who were not covered under a health insurance 
     plan for the six month period ending on the date on which 
     coverage under a high deductible plan commences would not be 
     taken into account.61 However, if the threshold 
     level is exceeded in a year, previously uninsured individuals 
     are subject to the same restriction on contributions in 
     succeeding years as other individuals. That is, they would 
     not be eligible for an MSA contribution for a year following 
     a cut-off year unless they are an active MSA participant 
     (i.e., had an MSA contribution for the year or a preceding 
     year) or are employed by a participating employer.
---------------------------------------------------------------------------
     \61\ Permitted coverage, as described above, does not 
     constitute coverage under a health insurance plan for this 
     purpose.
---------------------------------------------------------------------------
       The number of MSAs established has not exceeded the 
     threshold level.
       After December 31, 2000, no new contributions may be made 
     to MSAs except by or on behalf of individuals who previously 
     had MSA contributions and employees who are employed by a 
     participating employer. An employer is a participating 
     employer if (1) the employer made any MSA contributions for 
     any year to an MSA on behalf of employees or (2) at least 20 
     percent of the employees covered under a high deductible plan 
     made MSA contributions of at least $100 in the year 2000.
       Self-employed individuals who made contributions to an MSA 
     during the period 1997-2000 also may continue to make 
     contributions after 2000.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement extends the MSA program through 
     2002. The same rules that apply to the limit on MSAs for 1999 
     apply to 2000 and 2001. Thus, for example, the threshold 
     level in those years is 750,000 taxpayers.
       Effective date.--The provision is effective on the date of 
     enactment.

 E. Deduction for Providing Long-Term Care to Household Members (sec. 
             305 of the bill and new sec. 223 of the Code)


                              present law

       Under present law, the individual income tax treatment of 
     health insurance expenses depends on the individual's 
     circumstances. Self-employed individuals may deduct a portion 
     of health insurance expenses for the individual and his or 
     her spouse and dependents. The deductible percentage of 
     health insurance expenses of a self-employed individual is 60 
     percent in 2000 and 2001; 70 percent in 2002; and 100 percent 
     in 2003 and thereafter. The deduction for health insurance 
     expenses of self-employed individuals is not available for 
     any month in which the taxpayer is eligible to participate in 
     a subsidized health plan maintained by the employer of the 
     taxpayer or the taxpayer's spouse. The deduction applies to 
     qualified long-term care insurance premiums treated as 
     medical expenses under the itemized deduction for medical 
     expenses, described below.
       Employees can exclude from income 100 percent of employer-
     provided health insurance or qualified long-term care 
     insurance.
       Individuals who itemize deductions may deduct their health 
     insurance expenses only to the extent that the total medical 
     expenses of the individual exceed 7.5 percent of adjusted 
     gross income (sec. 213). Subject to certain dollar 
     limitations, premiums for qualified long-term care insurance 
     are treated as medical expenses for purposes of the itemized 
     deduction for medical expenses (sec. 213). The amount of 
     qualified long-term care insurance premiums that may be taken 
     into account for 2000 is as follows: $220 in the case of an 
     individual 40 years old or less; $410 in the case of an 
     individual who is more than 40 but not more than 50; $820 in 
     the case of an individual who is more than 50 but not more 
     than 60; $2,200 in the case of an individual who is more than 
     60 but not more than 70; and $2,750 in the case of an 
     individual who is more than 70. These dollar limits are 
     indexed for inflation.
       To qualify as a dependent under present law, an individual 
     must: (1) be a specified relative or member of the taxpayer's 
     household; (2) be a citizen or resident of the U.S. or 
     resident of Canada or Mexico; (3) not be required to file a 
     joint tax return with his or her spouse; (4) have gross 
     income below the dependent exemption amount ($2,800 in 2000) 
     if not the taxpayer's child; and (5) receive over half of his 
     or her support from the taxpayer. If no one person 
     contributes over half the support of an individual, the 
     taxpayer is treated as meeting the support requirement if: 
     (1) over half the support is received from persons each of 
     whom, but for the fact that he or she did not provide over 
     half such support, could claim the individual as a dependent; 
     (2) the taxpayer contributes over 10 percent of such support; 
     and (3) other caregivers who provide over 10 percent of the 
     support file written declarations stating that they will not 
     claim the individual as a dependent.


                               house bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement provides taxpayers who maintain a 
     household including one or more qualifying individuals a 
     deduction with respect to each qualifying individual with 
     long- term care needs, regardless of the expenses incurred in 
     the care of the qualifying dependent. The deduction does not 
     reduce adjusted gross income (i.e., is not ``above-the-
     line''); however, the deduction is available whether or not 
     the taxpayer itemizes deductions. The deductible amount is 
     reduced by amounts received under a long-term care contract 
     (whether or not qualified and including contracts that pay on 
     a per diem or similar basis) covering the qualifying 
     dependent. The deduction is phased out for higher income 
     taxpayers in the same manner as the personal exemption 
     amount.62 The deduction is taken into account in 
     determining alternative minimum taxable income.
---------------------------------------------------------------------------
     \62\ The deduction is added to the taxpayer's personal 
     exemptions for purposes of the personal exemption phaseout. 
     For 2000, the personal exemption amount phases out over the 
     following ranges of adjusted gross income: $193,400-$315,9000 
     for married taxpayers filing a joint return; $161,150-
     $283,650 for taxpayers filing as heads of households; and 
     $128,950- $251,450 for unmarried taxpayers.
---------------------------------------------------------------------------
       The deductible amount is $3,000 in 2001 and increases by 
     $1,000 each year thereafter until the limit is $10,000 in 
     2010 and thereafter.
       An individual is a qualifying individual with respect to a 
     taxpayer if the individual

[[Page H10968]]

     (1) is the spouse of the taxpayer or a relative of the 
     taxpayer determined under the rules relating to the 
     dependency exemption, and (2) lives in a household maintained 
     by the taxpayer for the entire taxable year. In addition, if 
     the individual is not the taxpayer's spouse or a child of the 
     taxpayer (as determined under the dependency rules), the 
     individual's gross income for the year must be less than the 
     sum of the personal exemption amount, the standard deduction 
     for a single taxpayer and, if applicable, the additional 
     deduction for the elderly and blind.
       A qualifying individual must be certified before the due 
     date for the return for the taxable year (without regard to 
     extensions) as having long-term care needs (as described 
     below based on the age of the individual) for at least 180 
     consecutive days. Some portion of the 180-day period must 
     fall within the taxable year. The deduction is not available 
     unless the certification was made no more than 39-1/2 months 
     before the due date for the return (or such other time as 
     specified by the Secretary).
       In general, an individual who is at least six years of age 
     is considered to have long-term care needs if the individual 
     is unable to perform at least three activities of daily 
     living (``ADLs'') without substantial assistance due to a 
     loss of functional capacity including individuals born with a 
     condition that is comparable to a loss of functional 
     capacity. As under the present-law rules relating to long-
     term care, ADLs are eating, toileting, transferring, bathing, 
     dressing and continence. Substantial assistance includes both 
     hands-on assistance (that is, the physical assistance of 
     another person without which the individual would be 
     unable to perform the ADL) and stand-by assistance (that 
     is, the presence of another person within arm's reach of 
     the individual that is necessary to prevent, by physical 
     intervention, injury to the individual when performing the 
     ADL).
       As an alternative to the two-ADL test, an individual is 
     considered to have long-term care needs if the individual (1) 
     requires substantial supervision to protect the individual 
     from threats to health and safety due to severe cognitive 
     impairment and (2) is unable to perform, without reminding or 
     cuing assistance, at least one ADL or to the extent provided 
     in regulations,63 is unable to engage in age 
     appropriate activities.
---------------------------------------------------------------------------
     \63\ The regulations are to be prescribed by the Secretary, 
     in consultation with the Secretary of Health and Human 
     Services.
---------------------------------------------------------------------------
       A child between the ages of two and six is considered to 
     have long-term care needs if the child requires substantial 
     assistance with two of the following ADLs: eating, 
     transferring, and mobility.
       A child under the age of two is considered to have long-
     term care needs if the child requires specific durable 
     medical equipment (e.g., a respirator) by reason of a severe 
     health condition or requires a skilled practitioner to 
     address the child's condition when the parents are absent.
       For purposes of the provision, a taxpayer would be 
     considered to be maintaining a household for any period only 
     if over one-half the cost of maintaining the household for 
     the period is provided by the taxpayer (or, if married, the 
     taxpayer and his or her spouse). If the taxpayer is married 
     at the end of the taxable year, the deduction is available 
     only if the taxpayer and his or her spouse file a joint 
     return. An individual legally separated is not considered 
     married. An individual is not considered married if the 
     individual (1) files a separate return for the year, (2) 
     maintains a household which constitutes the principal place 
     of abode for a qualifying individual for more than one-half 
     of the year, and (3) during the last six months of the year 
     the individual's spouse is not a member of the individual's 
     household.
       The deduction is not available unless the taxpayer 
     identification number of the qualifying individual is 
     included on the taxpayer's return for the year. In addition, 
     the deduction is not available unless the taxpayer includes 
     on the return a physician identification number (e.g., the 
     Unique Physician Identification Number currently required for 
     Medicare billing). The IRS is authorized to use mathematical 
     error procedures to deny claims for the deduction during 
     return processing if the taxpayer does not provide valid 
     taxpayer identification numbers and physician identification 
     numbers.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.

  TITLE IV. PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS 
                              1

Subtitle A. Individual Retirement Arrangements (``IRAs'') (sec. 401-404 
 of the bill) (sec. 101 of the House bill, secs. 101-104 of the Senate 
          amendment, and secs. 219, 408, and 408A of the Code)


                              Present Law

     In general
       There are two general types of individual retirement 
     arrangements (``IRAs'') under present law: traditional IRAs, 
     to which both deductible and nondeductible contributions may 
     be made, and Roth IRAs. The Federal income tax rules 
     regarding each type of IRA (and IRA contribution) differ.
---------------------------------------------------------------------------
     \1\ The provisions of the bill as passed by the House and the 
     Senate did not contain provisions relating to pensions and 
     individual retirement arrangements. Provisions described 
     under the House bill refer to the provisions of H.R. 1102, 
     the ``Comprehensive Retirement Security and Pension Reform 
     Act of 2000,'' as passed by the House. For legislative 
     history, see H.R. Rep. No. 106-753. Provisions described 
     under the Senate amendment refer to the provisions of H.R. 
     1102, the ``Retirement Security and Savings Act of 2000,'' as 
     reported by the Senate Committee on Finance on September 13, 
     2000. For legislative history, see S.Rep. No. 106-411.
---------------------------------------------------------------------------
     Traditional IRAs
       Under present law, an individual may make deductible 
     contributions to an IRA up to the lesser of $2,000 or the 
     individual's compensation if neither the individual nor the 
     individual's spouse is an active participant in an employer-
     sponsored retirement plan. In the case of a married couple, 
     deductible IRA contributions of up to $2,000 can be made for 
     each spouse (including, for example, a homemaker who does not 
     work outside the home), if the combined compensation of both 
     spouses is at least equal to the contributed amount. If the 
     individual (or the individual's spouse) is an active 
     participant in an employer-sponsored retirement plan, the 
     $2,000 deduction limit is phased out for taxpayers with 
     modified adjusted gross income (``AGI'') over certain levels 
     for the taxable year.
       The AGI phase-out limits for taxpayers who are active 
     participants in employer-sponsored plans are as follows:


                            Single Taxpayers


                                                    AGI Phase-out range
Taxable years beginning in:
  2000...................................................$32,000-42,000
  2001....................................................33,000-43,000
  2002....................................................34,000-44,000
  2003....................................................40,000-50,000
  2004....................................................45,000-55,000
  2005 and thereafter.....................................50,000-60,000


                     Taxpayers Filing Joint Returns


                                                        Phase-out range
Taxable years beginning in:
  2000...................................................$52,000-62,000
  2001....................................................53,000-63,000
  2002....................................................54,000-64,000
  2003....................................................60,000-70,000
  2004....................................................65,000-75,000
  2005....................................................70,000-80,000
  2006....................................................75,000-85,000
  2007 and thereafter....................................80,000-100,000

       The AGI phase-out range for married taxpayers filing a 
     separate return is $0 to $10,000.
       If the individual is not an active participant in an 
     employer-sponsored retirement plan, but the individual's 
     spouse is, the $2,000 deduction limit is phased out for 
     taxpayers with AGI between $150,000 and $160,000.
       To the extent an individual cannot or does not make 
     deductible contributions to an IRA or contributions to a Roth 
     IRA, the individual may make nondeductible contributions to a 
     traditional IRA.
       Amounts held in a traditional IRA are includible in income 
     when withdrawn (except to the extent the withdrawal is a 
     return of nondeductible contributions). Includible amounts 
     withdrawn prior to attainment of age 59-1/2 are subject to an 
     additional 10-percent early withdrawal tax, unless the 
     withdrawal is due to death or disability, is made in the form 
     of certain periodic payments, is used to pay medical expenses 
     in excess of 7.5 percent of AGI, is used to purchase health 
     insurance for an unemployed individual, is used for education 
     expenses, or is used for first-time homebuyer expenses of up 
     to $10,000.
     Roth IRAs
       Individuals with AGI below certain levels may make 
     nondeductible contributions to a Roth IRA. The maximum annual 
     contribution that may be made to a Roth IRA is the lesser of 
     $2,000 or the individual's compensation for the year. The 
     contribution limit is reduced to the extent an individual 
     makes contributions to any other IRA for the same taxable 
     year. As under the rules relating to IRAs generally, a 
     contribution of up to $2,000 for each spouse may be made 
     to a Roth IRA provided the combined compensation of the 
     spouses is at least equal to the contributed amount. The 
     maximum annual contribution that can be made to a Roth IRA 
     is phased out for single taxpayers with AGI between 
     $95,000 and $110,000 and for taxpayers filing a joint 
     return with AGI between $150,000 and $160,000. For married 
     taxpayers filing a separate return, the phase-out range is 
     $0 to $10,000.
       Taxpayers with modified AGI of $100,000 or less generally 
     may convert a traditional IRA into a Roth IRA. The amount 
     converted is includible in income as if a withdrawal had been 
     made, except that the 10-percent early withdrawal tax does 
     not apply and, if the conversion occurred in 1998, the income 
     inclusion may be spread ratably over 4 years. Married 
     taxpayers who file separate returns cannot convert a 
     traditional IRA into a Roth IRA.
       Amounts held in a Roth IRA that are withdrawn as a 
     qualified distribution are neither includible in income, nor 
     subject to the additional 10-percent tax on early 
     withdrawals. A qualified distribution is a distribution that 
     (1) is made after the 5-taxable year period beginning with 
     the first taxable year for which the individual made a 
     contribution to a Roth IRA, and (2) which is made after 
     attainment of age 59\1/2\, on account of death or disability, 
     or is made for first-time homebuyer expenses of up to 
     $10,000.
       To the extent attributable to earnings, distributions from 
     a Roth IRA that are not qualified distributions are 
     includible in income and subject to the 10-percent early

[[Page H10969]]

     withdrawal tax (unless an exception applies).2 The 
     same exceptions to the early withdrawal tax that apply to 
     IRAs apply to Roth IRAs.
---------------------------------------------------------------------------
     \2\ Early distribution of converted amounts may also 
     accelerate income inclusion of converted amounts that are 
     taxable under the 4-year rule applicable to 1998 conversions.
---------------------------------------------------------------------------
     Taxation of charitable contributions
       Generally, a taxpayer who itemizes deductions may deduct 
     cash contributions to charity, as well as the fair market 
     value of contributions of property. The amount of the 
     deduction otherwise allowable for the taxable year with 
     respect to a charitable contribution may be reduced, 
     depending on the type of property contributed, the type of 
     charitable organization to which the property is contributed, 
     and the income of the taxpayer.
       For donations of cash by individuals, total deductible 
     contributions to public charities may not exceed 50 percent 
     of a taxpayer's AGI for a taxable year. To the extent a 
     taxpayer has not exceeded the 50-percent limitation, 
     contributions of cash to private foundations and certain 
     other nonprofit organizations and contributions of capital 
     gain property to public charities generally may be deducted 
     up to 30 percent of the taxpayer's AGI. If a taxpayer makes a 
     contribution in one year which exceeds the applicable 50-
     percent or 30-percent limitation, the excess amount of the 
     contribution may be carried over and deducted during the next 
     five taxable years.
       In addition to the percentage limitations imposed 
     specifically on charitable contributions, present law imposes 
     a reduction on most itemized deductions, including charitable 
     contribution deductions, for taxpayers with AGI in excess of 
     a threshold amount, which is indexed annually for inflation. 
     The threshold amount for 2000 is $128,950 ($64,475 for 
     married individuals filing separate returns). For those 
     deductions that are subject to the reduction, the total 
     amount of itemized deductions is reduced by 3 percent of AGI 
     over the threshold amount, but not by more than 80 percent of 
     itemized deductions subject to the reduction. The effect of 
     this reduction may be to limit a taxpayer's ability to deduct 
     charitable contributions.


                               House Bill

     Increase in annual contribution limits
       The House bill increases the maximum annual dollar 
     contribution limit for IRA contributions from $2,000 to 
     $3,000 in 2001, $4,000 in 2002, and $5,000 in 2003. The limit 
     is indexed for inflation in $500 increments in 2004 and 
     thereafter.
     Additional catch-up contributions
       In the case of individuals who have attained age 50 before 
     the end of the taxable year, the IRA contribution limit is 
     $5,000, beginning in 2001.
     Increase in AGI limits for deductible IRA contributions
       No provision.
     Roth IRAs
       No provision.
     Deemed IRAs under employer plans
       No provision.
     Tax-free IRA withdrawals for charitable purposes
       No provision.
     Effective date
       The provision is effective for taxable years beginning 
     after December 31, 2000.


                            Senate Amendment

     Increase in annual contribution limits
       The Senate amendment is the same as the House bill.
     Additional catch-up contributions
       The bill provides that individuals who have attained age 50 
     may make additional catch-up IRA contributions. The otherwise 
     maximum contribution limit (before application of the AGI 
     phase-out limits) for an individual who has attained age 50 
     before the end of the taxable year is increased by 50 
     percent.
     Increase in AGI limits for deductible IRA contributions
       Under the bill, the increases in the AGI phase-out limits 
     for active participants in an employer-sponsored plan are 
     evened out. In addition, the phase-out range for married 
     taxpayers filing separately is conformed to the phase-out 
     range for single taxpayers. The AGI phase-out limits under 
     the bill are as follows.

           Taxpayers Filing Returns Other Than Joint Returns


                                                    AGI Phase-out range
Taxable years beginning in:
  2001...................................................$36,000-46,000
  2002....................................................40,000-50,000
  2003....................................................44,000-54,000
  2004....................................................48,000-58,000
  2005 and thereafter.....................................50,000-60,000

                     Taxpayers Filing Joint Returns


                                                    AGI Phase-out range
Taxable years beginning in:
  2001...................................................$56,000-66,000
  2002....................................................60,000-70,000
  2003....................................................64,000-74,000
  2004....................................................68,000-78,000
  2005....................................................72,000-82,000
  2006....................................................76,000-86,000
  2007 and thereafter....................................80,000-100,000

       The present-law income phase-out range for an individual 
     who is not an active participant in an employer-sponsored 
     plan, but whose spouse is, remains at $150,000 to $160,000.
     Roth IRAs
       The bill increases the income phase-out range for Roth IRA 
     contributions to $190,000 to $220,000 for married couples 
     filing a joint return. In addition, the bill applies to 
     married taxpayers filing a separate return the same phase-out 
     range that applies to single taxpayers.
       Under the bill, the income limit for conversions of 
     traditional IRAs to Roth IRAs is $200,000 for married couples 
     filing a joint return. For all other taxpayers (including 
     married taxpayers filing a separate return), the limit is 
     $100,000.
     Deemed IRAs under employer plans
       The bill provides that, if an eligible retirement plan 
     permits employees to make voluntary employee contributions to 
     a separate account or annuity that (1) is established under 
     the plan, and (2) meets the requirements applicable to either 
     traditional IRAs or Roth IRAs, then the separate account or 
     annuity is deemed to be a traditional IRA or a Roth IRA, as 
     applicable, for all purposes of the Code. For example, the 
     reporting requirements applicable to IRAs apply. The deemed 
     IRA, and contributions thereto, are not subject to the Code 
     rules pertaining to the eligible retirement plan. In 
     addition, the deemed IRA, and contributions thereto, are not 
     taken into account in applying such rules to any other 
     contributions under the plan. The deemed IRA, and 
     contributions thereto, are subject to the exclusive benefit 
     and fiduciary rules of ERISA to the extent otherwise 
     applicable to the plan, but are not subject to the ERISA 
     reporting and disclosure, participation, vesting, funding, 
     and enforcement requirements that apply to the eligible 
     retirement plan. An eligible retirement plan is a qualified 
     plan (sec. 401(a)), tax- sheltered annuity (sec. 403(b)), or 
     a governmental section 457 plan.
     Tax-free IRA withdrawals for charitable purposes
       The bill provides an exclusion from gross income for 
     qualified charitable distributions from an IRA: (1) to an 
     organization to which deductible contributions can be made; 
     (2) to a charitable remainder annuity trust or charitable 
     remainder unitrust; (3) to a pooled income fund (as defined 
     in sec. 642(c)(5)); or (4) for the issuance of a charitable 
     gift annuity. The exclusion applies with respect to 
     distributions described in (2), (3), or (4) only if no person 
     holds an income interest in the trust, fund, or annuity 
     attributable to such distributions other than the IRA owner, 
     his or her spouse, or a charitable organization.
       In determining the character of distributions from a 
     charitable remainder annuity trust or a charitable remainder 
     unitrust to which a qualified charitable distribution from an 
     IRA is made, the charitable remainder trust is required to 
     treat as ordinary income the portion of the distribution from 
     the IRA to the trust which would have been includible in 
     income but for the provision, and is required to treat any 
     remaining portion of the distribution as corpus. Similarly, 
     in determining the amount includible in gross income by 
     reason of a payment from a charitable gift annuity purchased 
     with a qualified charitable distribution from an IRA, the 
     taxpayer is not permitted to treat the portion of the 
     distribution from the IRA that would have been taxable but 
     for the provision and which is used to purchase the annuity 
     as an investment in the annuity contract.
       A qualified charitable distribution is any distribution 
     from an IRA which (1) is made after age 70\1/2\ of the 
     account holder, (2) qualifies as a charitable contribution 
     (within the meaning of sec. 170(c)), and (3) is made directly 
     to the organization or to a charitable remainder annuity 
     trust, charitable remainder unitrust, pooled income fund, or 
     charitable gift annuity (as described above). 3 
     A taxpayer is not permitted to claim a charitable 
     contribution deduction for amounts transferred from his or 
     her IRA to a charity or to a trust, fund, or annuity that, 
     because of the provision, are excluded from the taxpayer's 
     income. Conversely, if the amounts transferred would 
     otherwise be nontaxable, e.g., a qualified distribution 
     from a Roth IRA, the regularly applicable deduction rules 
     would apply.
---------------------------------------------------------------------------
     \3\  It is intended that, in the case of transfer to a trust, 
     fund, or annuity, the full amount distributed from an IRA 
     will meet the definition of a qualified charitable 
     distribution if the charitable organization's interest in the 
     distribution would qualify as a charitable contribution under 
     section 170.
---------------------------------------------------------------------------
     Effective date
       The provisions are generally effective for taxable years 
     beginning after December 31, 2000. The provision relating to 
     deemed IRAs under employer plans is effective for plan years 
     beginning after December 31, 2001.


                          Conference Agreement

     Increase in annual contribution limits
       The conference agreement follows the House bill and the 
     Senate amendment.
     Additional catch-up contributions
       The conference agreement follows the Senate amendment, with 
     modifications. Under the conference agreement, the maximum 
     catch-up amount is phased in over the same period as the 
     increase in the IRA contribution limit. The maximum catch-up 
     contribution is $500 in 2001, $1,000 in 2002, and $1,500 in 
     2003. The $1,500 amount is indexed for inflation beginning 
     after 2003 (when the indexing of the $5,000 basic 
     contribution limit begins).

[[Page H10970]]

     Increase in AGI limits for deductible IRA contributions
       The conference agreement follows the Senate amendment.
     Roth IRAs
       The conference agreement follows the Senate amendment.
     Deemed IRAs under employer plans
       The conference agreement follows the Senate amendment. As 
     under the Senate amendment, if an eligible retirement plan 
     permits employees to make voluntary employee contributions to 
     a separate account or annuity that (1) is established under 
     the plan, and (2) meets the requirements applicable to either 
     traditional IRAs or Roth IRAs, then the separate account or 
     annuity is deemed to be a traditional IRA or a Roth IRA, as 
     applicable, for all purposes of the Code. For example, the 
     IRA reporting requirements apply. The deemed IRA, and 
     contributions thereto, are not subject to the Code rules 
     pertaining to the eligible retirement plan. In addition, the 
     deemed IRA, and contributions thereto, are not taken into 
     account in applying such rules to any other contributions 
     under the plan. The deemed IRA, and contributions thereto, 
     are subject to the exclusive benefit and fiduciary rules of 
     ERISA to the extent otherwise applicable to the plan, but are 
     not subject to the ERISA reporting and disclosure, 
     participation, vesting, funding, and enforcement requirements 
     that apply to the eligible retirement plan. Except as 
     otherwise specified, the provision does not affect the 
     treatment of the deemed IRA as part of the qualified plan.
     Tax-free IRA withdrawals for charitable purposes
       The conference agreement follows the Senate amendment, with 
     the modification that the tax-free treatment is available 
     only for a distribution made to an organization to which 
     charitable contributions (as defined in sec. 170(c)) can be 
     made, and not for distributions to charitable remainder 
     trusts, pooled income funds, or for the issuance of 
     charitable gift annuities. The conferees clarify that the 
     exclusion does not apply unless the distribution meets the 
     requirements generally applicable to deductible contributions 
     (other than the percentage limits on such deductions). Thus, 
     for example, the substantiation rules and the rule limiting 
     the deductible amount of a contribution to the excess, if 
     any, of the value of the contribution over the value of any 
     benefit received by the donor, would apply. It is intended 
     that the Secretary will issue such rules as are necessary to 
     apply to distributions made to organizations pursuant to the 
     provision.
       The conference agreement also clarifies that amounts that 
     would have been includible in gross income but for the 
     provision are not deductible in any year. In addition, such 
     amounts are not taken into account in determining the 
     deductible amount for any year.
       Except as provided in the provision, a distribution under 
     the provision is treated the same as other IRA distributions. 
     Thus, for example, the distribution is taken into account in 
     determining whether the minimum distribution requirements are 
     satisfied.
     Effective date
       The provisions are generally effective for taxable years 
     beginning after December 31, 2000. The provision relating to 
     deemed IRAs under employer plans is effective for plan years 
     beginning after December 31, 2001.

       Subtitle B: Expanding Coverage (secs. 411-418 of the bill)

 A. Increase in Benefit and Contribution Limits (sec. 201 of the House 
 bill, sec. 201 of the Senate amendment, and secs. 401(a)(17), 402(g), 
                   408(p), 415, and 457 of the Code)


                              Present Law

     In general
       Under present law, limits apply to contributions and 
     benefits under qualified plans (sec. 415), the amount of 
     compensation that may be taken into account under a plan for 
     determining benefits (sec. 401(a)(17)), the maximum amount of 
     elective deferrals that an individual may make to a salary 
     reduction plan or tax sheltered annuity (sec. 402(g)), and 
     deferrals under an eligible deferred compensation plan of a 
     tax-exempt organization or a State or local government (sec. 
     457).
     Limitations on contributions and benefits
       Under present law, the limits on contributions and benefits 
     under qualified plans are based on the type of plan. Under a 
     defined contribution plan, the qualification rules limit the 
     annual additions to the plan with respect to each plan 
     participant to the lesser of (1) 25 percent of compensation 
     or (2) $30,000 (for 2000). Annual additions are the sum of 
     employer contributions, employee contributions, and 
     forfeitures with respect to an individual under all defined 
     contribution plans of the same employer. The $30,000 limit is 
     indexed for inflation in $5,000 increments.
       Under a defined benefit plan, the maximum annual benefit 
     payable at retirement is generally the lesser of (1) 100 
     percent of average compensation, or (2) $135,000 (for 2000). 
     The dollar limit is adjusted for inflation in $5,000 
     increments.
       Under present law, in general, the dollar limit on annual 
     benefits is reduced if benefits under the plan begin before 
     the social security retirement age (currently, age 65) and 
     increased if benefits begin after social security retirement 
     age.
     Compensation limitation
       Under present law, the annual compensation of each 
     participant that may be taken into account for purposes of 
     determining contributions and benefits under a plan, applying 
     the deduction rules, and for nondiscrimination testing 
     purposes is limited to $170,000 (for 2000). The compensation 
     limit is indexed for inflation in $10,000 increments.
     Elective deferral limitations
       Under present law, under certain salary reduction 
     arrangements, an employee may elect to have the employer make 
     payments as contributions to a plan on behalf of the 
     employee, or to the employee directly in cash. Contributions 
     made at the election of the employee are called elective 
     deferrals.
       The maximum annual amount of elective deferrals that an 
     individual may make to a qualified cash or deferred 
     arrangement (a ``section 401(k) plan''), a tax-sheltered 
     annuity (``section 403(b) annuity'') or a salary reduction 
     simplified employee pension plan (``SEP'') is $10,500 (for 
     2000). The maximum annual amount of elective deferrals that 
     an individual may make to a SIMPLE plan is $6,000. These 
     limits are indexed for inflation in $500 increments.
     Section 457 plans
       The maximum annual deferral under a deferred compensation 
     plan of a State or local government or a tax-exempt 
     organization (a ``section 457 plan'') is the lesser of (1) 
     $8,000 (for 2000) or (2) 33\1/2\ percent of compensation. The 
     $8,000 dollar limit is indexed for inflation in $500 
     increments. Under a special catch-up rule, the section 457 
     plan may provide that, for one or more of the participant's 
     last 3 years before retirement, the otherwise applicable 
     limit is increased to the lesser of (1) $15,000 or (2) the 
     sum of the otherwise applicable limit for the year plus the 
     amount by which the limit applicable in preceding years of 
     participation exceeded the deferrals for that year.


                               House Bill

     Limits on contributions and benefits
       The House bill increases the $30,000 annual addition limit 
     for defined contribution plans to $40,000. This amount is 
     indexed for inflation in $1,000 increments.\4\
---------------------------------------------------------------------------
     \4\ The 25 percent of compensation limitation is increased to 
     100 percent of compensation under another provision of the 
     House bill.
---------------------------------------------------------------------------
       The House bill increases the $135,000 annual benefit limit 
     under a defined benefit plan to $160,000. The dollar limit is 
     reduced for benefit commencement before age 62 and increased 
     for benefit commencement after age 65.
     Compensation limitation
       The House bill increases the limit on compensation that may 
     be taken into account under a plan to $200,000. This amount 
     is indexed for inflation in $5,000 increments.
     Elective deferral limitations
       The House bill increases the dollar limit on annual 
     elective deferrals under section 401(k) plans, section 403(b) 
     annuities and salary reduction SEPs to $11,000 in 2001, and 
     in $1,000 annual increments thereafter until the limits reach 
     $15,000 in 2005. The $15,000 limit is indexed for inflation 
     in $500 increments beginning in 2006. Beginning in 2001, the 
     House bill increases the maximum annual elective deferrals 
     that may be made to a SIMPLE plan in $1,000 annual increments 
     until the limit reaches $10,000 in 2004. The $10,000 limit is 
     indexed for inflation in $500 increments beginning in 2005.
     Section 457 plans
       The House bill increases the dollar limit on deferrals 
     under a section 457 plan to conform to the elective deferral 
     limitation. Thus, the limit is $11,000 in 2001, and is 
     increased in $1,000 annual increments thereafter until the 
     limit reaches $15,000 in 2005. The $15,000 limit is indexed 
     for inflation in $500 increments beginning in 2006. The limit 
     is twice the otherwise applicable dollar limit in the three 
     years prior to retirement.5
---------------------------------------------------------------------------
     \5\ Another provision of the House bill increases the 33\1/3\ 
     percentage of compensation limit to 100 percent.
---------------------------------------------------------------------------
     Effective date
       The House bill is effective for years beginning after 
     December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     with respect to the provision relating to the defined 
     contribution plan dollar limit. The Senate amendment retains 
     the present-law $30,000 limit, and indexes the limit for 
     inflation in $1,000 increments.
       Effective date.--Same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill. In 
     adopting rules regarding the application of the increase in 
     the defined benefit plan limits under the bill, the conferees 
     intend that the Secretary will apply rules similar to those 
     adopted in Notice 99-44 regarding benefit increases due to 
     the repeal of the combined plan limit under former section 
     415(e). Thus, for example, a defined benefit plan could 
     provide for benefit increases to reflect the provisions of 
     the bill for a current or former employee who has commenced 
     benefits under the plan prior to the effective date of the 
     bill if the employee or former employee has an accrued 
     benefit

[[Page H10971]]

     under the plan (other than an accrued benefit resulting from 
     a benefit increase solely as a result of the increases in the 
     section 415 limits under the bill). As under the notice, the 
     maximum amount of permitted increase is generally the amount 
     that could have been provided had the provisions of the bill 
     been in effect at the time of the commencement of benefit. In 
     no case can benefits reflect increases that could not be paid 
     prior to the effective date because of the limits in effect 
     under present law. In addition, in no case can plan 
     amendments providing increased benefits under the relevant 
     provision of the bill be effective prior to the effective 
     date of the provision.

   B. Plan Loans for S Corporation Shareholders, Partners, and Sole 
    Proprietors (sec. 202 of the House bill, sec. 202 of the Senate 
                 amendment, and sec. 4975 of the Code)


                              Present Law

       The Internal Revenue Code prohibits certain transactions 
     (``prohibited transactions'') between a qualified plan and a 
     disqualified person in order to prevent persons with a close 
     relationship to the qualified plan from using that 
     relationship to the detriment of plan participants and 
     beneficiaries.6 Certain types of transactions are 
     exempted from the prohibited transaction rules, including 
     loans from the plan to plan participants, if certain 
     requirements are satisfied. In addition, the Secretary of 
     Labor can grant an administrative exemption from the 
     prohibited transaction rules if she finds the exemption is 
     administratively feasible, in the interest of the plan and 
     plan participants and beneficiaries, and protective of the 
     rights of participants and beneficiaries of the plan. 
     Pursuant to this exemption process, the Secretary of Labor 
     grants exemptions both with respect to specific transactions 
     and classes of transactions.
---------------------------------------------------------------------------
     \6\ Title I of the Employee Retirement Income Security Act of 
     1974, as amended (``ERISA''), also contains prohibited 
     transaction rules. The Code and ERISA provisions are 
     substantially similar, although not identical.
---------------------------------------------------------------------------
       The statutory exemptions to the prohibited transaction 
     rules do not apply to certain transactions in which the plan 
     makes a loan to an owner-employee.7 Loans to 
     participants other than owner-employees are permitted if 
     loans are available to all participants on a reasonably 
     equivalent basis, are not made available to highly 
     compensated employees, are made in accordance with specific 
     provisions in the plan, bear a reasonable rate of interest, 
     and are adequately secured. In addition, the Code places 
     limits on the amount of loans and the repayment terms.
---------------------------------------------------------------------------
     \7\ Certain transactions involving a plan and S corporation 
     shareholders are permitted.
---------------------------------------------------------------------------
       For purposes of the prohibited transaction rules, an owner-
     employee means (1) a sole proprietor, (2) a partner who owns 
     more than 10 percent of either the capital interest or the 
     profits interest in the partnership, (3) an employee or 
     officer of an S corporation who owns more than 5 percent of 
     the outstanding stock of the corporation, and (4) the owner 
     of an individual retirement arrangement (``IRA''). The term 
     owner-employee also includes certain family members of an 
     owner-employee and certain corporations owned by an owner-
     employee.
       Under the Internal Revenue Code, a two-tier excise tax is 
     imposed on disqualified persons who engage in a prohibited 
     transaction. The first level tax is equal to 15 percent of 
     the amount involved in the transaction. The second level tax 
     is imposed if the prohibited transaction is not corrected 
     within a certain period, and is equal to 100 percent of the 
     amount involved.


                               House Bill

       The House bill generally eliminates the special present-law 
     rules relating to plan loans made to an owner-employee (other 
     than the owner of an IRA). Thus, the general statutory 
     exemption applies to such transactions. Present law continues 
     to apply with respect to IRAs.
       Effective date.--The House bill is effective with respect 
     to loans made after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House 
     bill.8
---------------------------------------------------------------------------
     \8\ The Senate amendment also amends the corresponding 
     provisions of ERISA.
---------------------------------------------------------------------------
       Effective date.--The Senate amendment is effective for 
     years beginning after December 31, 2000.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.
       Effective date.--The conference agreement follows the 
     Senate amendment. Thus, as under the Senate amendment, a loan 
     that is a prohibited transaction solely because of the 
     present-law restriction would cease to be a prohibited 
     transaction on January 1, 2000. However, the loan would 
     continue to be a prohibited transaction prior to January 1, 
     2000.

 C. Modification of Top-Heavy Rules (sec. 203 of the House bill, sec. 
         203 of the Senate amendment, and sec. 416 of the Code)


                              Present Law

     In general
       Under present law, additional qualification requirements 
     apply to plans that primarily benefit an employer's key 
     employees (``top-heavy plans''). These additional 
     requirements provide (1) more rapid vesting for plan 
     participants who are non-key employees and (2) minimum 
     nonintegrated employer contributions or benefits for plan 
     participants who are non-key employees.
     Definition of top-heavy plan
       In general, a top-heavy plan is a plan under which more 
     than 60 percent of the contributions or benefits are provided 
     to key employees.
       For purposes of determining whether a plan is a top-heavy 
     plan, benefits derived both from employer and employee 
     contributions, including employee elective contributions, are 
     taken into account. In addition, the accrued benefit of a 
     participant in a defined benefit plan and the account balance 
     of a participant in a defined contribution plan includes any 
     amount distributed within the 5-year period ending on the 
     determination date.
       An individual's accrued benefit or account balance is not 
     taken into account in determining whether a plan is top-heavy 
     if the individual has not performed services for the employer 
     during the 5-year period ending on the determination date.
       SIMPLE plans are not subject to the top-heavy rules.
     Definition of key employee
       A key employee is an employee who, during the plan year 
     containing the determination date for the plan year in 
     question or any of the 4 preceding plan years, is (1) an 
     officer earning over one-half of the defined benefit plan 
     dollar limitation of section 415 ($67,500 for 2000), (2) a 5-
     percent owner of the employer, (3) a 1-percent owner of the 
     employer earning over $150,000, or (4) one of the 10 
     employees earning more than the defined contribution plan 
     dollar limit ($30,000 for 2000) with the largest ownership 
     interests in the employer. A family ownership attribution 
     rule applies to the determination of 1-percent owner status, 
     5-percent owner status, and largest ownership interest. Under 
     this attribution rule, an individual is treated as owning 
     stock owned by the individual's spouse, children, 
     grandchildren, or parents.
     Minimum benefit for non-key employees
       A minimum benefit generally must be provided to all non-key 
     employees in a top-heavy plan. In general, a top-heavy 
     defined benefit plan must provide a minimum benefit equal to 
     the lesser of (1) 2 percent of compensation multiplied by the 
     employee's years of service, or (2) 20 percent of 
     compensation. A top-heavy defined contribution plan must 
     provide a minimum annual contribution equal to the lesser of 
     (1) 3 percent of compensation, or (2) the percentage of 
     compensation at which contributions were made for key 
     employees (including employee elective contributions made by 
     key employees and employer matching contributions).
       For purposes of the minimum benefit rules, only benefits 
     derived from employer contributions (other than amounts 
     employees have elected to defer) to the plan are taken into 
     account, and an employee's social security benefits are 
     disregarded (i.e., the minimum benefit is nonintegrated). 
     Employer matching contributions may be used to satisfy the 
     minimum contribution requirement; however, in such a case the 
     contributions are not treated as matching contributions for 
     purposes of applying the special nondiscrimination 
     requirements applicable to employee elective contributions 
     and matching contributions under sections 401(k) and (m). 
     Thus, such contributions would have to meet the general 
     nondiscrimination test of section 401(a)(4).9
---------------------------------------------------------------------------
     \9\ Tres. Reg. sec. 1.416-1 Q&A M-19.
---------------------------------------------------------------------------
     Top-heavy vesting
       Benefits under a top-heavy plan must vest at least as 
     rapidly as under one of the following schedules: (1) 3-year 
     cliff vesting, which provides for 100 percent vesting after 3 
     years of service; and (2) 2-6 year graded vesting, which 
     provides for 20 percent vesting after 2 years of service, and 
     20 percent more each year thereafter so that a participant is 
     fully vested after 6 years of service.10
---------------------------------------------------------------------------
     \10\ Benefits under a plan that is not top heavy must vest at 
     least as rapidly as under one of the following schedules: (1) 
     5-year cliff vesting; and (2) 3-7 year graded vesting, which 
     provides for 20 percent vesting after 3 years of service and 
     20 percent more each year thereafter so that a participant is 
     fully vested after 7 years of service.
---------------------------------------------------------------------------
     Qualified cash or deferred arrangements
       Under a qualified cash or deferred arrangement (a ``section 
     401(k) plan''), an employee may elect to have the employer 
     make payments as contributions to a qualified plan on behalf 
     of the employee, or to the employee directly in cash. 
     Contributions made at the election of the employee are called 
     elective deferrals. A special nondiscrimination test 
     applies to elective deferrals under cash or deferred 
     arrangements, which compares the elective deferrals of 
     highly compensated employees with elective deferrals of 
     nonhighly compensated employees. (This test is called the 
     actual deferral percentage test or the ``ADP'' test). 
     Employer matching contributions under qualified defined 
     contribution plans are also subject to a similar 
     nondiscrimination test. (This test is called the actual 
     contribution percentage test or the ``ACP'' test.)
       Under a design-based safe harbor, a cash or deferred 
     arrangement is deemed to satisfy the ADP test if the plan 
     satisfies one of two contribution requirements and satisfies 
     a notice requirement.

[[Page H10972]]

                               House Bill

     Definition of top-heavy plan
       The provision provides that a plan consisting of a cash-or-
     deferred arrangement that satisfies the design-based safe 
     harbor for such plans and matching contributions that satisfy 
     the safe harbor rule for such contributions is not a top-
     heavy plan. Matching or nonelective contributions provided 
     under such a plan may be taken into account in satisfying the 
     minimum contribution requirements applicable to top-heavy 
     plans.11
---------------------------------------------------------------------------
     \11\ This provision is not intended to preclude the use of 
     nonelective contributions that are used to satisfy the safe 
     harbor rules from being used to satisfy other qualified 
     retirement plan nondiscrimination rules, including those 
     involving cross-testing.
---------------------------------------------------------------------------
       In determining whether a plan is top-heavy, the provision 
     provides that distributions during the year ending on the 
     date the top-heavy determination is being made are taken into 
     account; however, the present-law 5-year rule applies with 
     respect to in-service distributions. Similarly, the provision 
     provides that an individual's accrued benefit or account 
     balance is not taken into account if the individual has not 
     performed services for the employer during the 1-year period 
     ending on the date the top-heavy determination is being made.
     Definition of key employee
       The provision (1) provides that an employee is not 
     considered a key employee by reason of officer status unless 
     the employee earns more than $150,000 in compensation for the 
     year, and (2) repeals the top-10 owner key employee category.
       The provision repeals the 4-year lookback rule for 
     determining key employee status and provides that an employee 
     is a key employee only if he or she is a key employee during 
     the plan year containing the determination date for the plan 
     year in question.
       The family ownership attribution rule no longer applies in 
     determining whether an individual is a 5-percent owner of the 
     employer for purposes of the top-heavy rules only. The family 
     ownership attribution rule continues to apply to other 
     provisions that cross reference the top-heavy rules, such as 
     the definition of highly compensated employee and the 
     definition of 1-percent owner under the top-heavy rules.
     Minimum benefit for non-key employees
       Under the provision, matching contributions are taken into 
     account in determining whether the minimum benefit 
     requirement has been satisfied.12
---------------------------------------------------------------------------
     \12\ Thus, this provision overrides the provision in Treasury 
     regulations that, if matching contributions are used to 
     satisfy the minimum benefit requirement, then they are not 
     treated as matching contributions for purposes of the section 
     401(m) nondiscrimination rules.
---------------------------------------------------------------------------
       The provision provides that, in determining the minimum 
     benefit required under a defined benefit plan, a year of 
     service does not include any year in which no employee 
     benefits under the plan (as determined under sec. 410).
     Effective date
       The provision is effective for years beginning after 
     December 31, 2000.


                            Senate Amendment

       The Senate amendment follows the House bill, with the 
     following modifications.
       Under the Senate amendment, an employee is considered a key 
     employee if, during the prior year, the employee was (1) an 
     officer with compensation in excess of $85,000 (for 2000), 
     (2) a 5-percent owner, or (3) a 1-percent owner with 
     compensation in excess of $150,000. The present-law limits on 
     the number of officers treated as key employees under (1) 
     continue to apply. An employee who was not an employee in the 
     preceding plan year, or who was an employee only for part of 
     the year, is treated as a key employee if it can be 
     reasonably anticipated that the employee will meet the 
     definition of a key employee for current plan year.
       The Senate amendment provides that, in determining the 
     minimum benefit required under a defined benefit plan, a year 
     of service does not include any year in which no key employee 
     or former key employee benefits under the plan (as determined 
     under sec. 410).
       Effective date.--The Senate amendment is effective for 
     years beginning after December 31, 2000.


                          Conference Agreement

       The conference agreement follows the House bill, with the 
     following modifications. Under the conference agreement, an 
     employee is a key employee if, during the plan year 
     containing the determination date for the plan year in 
     question, the employee was (1) an officer with compensation 
     in excess of $115,000 (indexed for inflation after 2001), (2) 
     a 5-percent owner, or (3) a 1-percent owner with compensation 
     in excess of $150,000. The present-law limits on the number 
     of officers treated as key employees under (1) continue to 
     apply. As under the House bill, the family ownership 
     attribution rule no longer applies in determining whether 
     an individual is a 5-percent owner of the employer for 
     purposes of the top-heavy rules only. The family ownership 
     attribution rule continues to apply to other provisions 
     that cross reference the top-heavy rules, such as the 
     definition of highly compensated employee and the 
     definition of 1-percent owner under the top-heavy rules.
       The conference agreement follows the Senate amendment in 
     providing that, in determining the minimum benefit required 
     under a defined benefit plan, a year of service does not 
     include any year in which no key employee or former key 
     employee benefits under the plan (as determined under sec. 
     410).
       Effective date.--The conference agreement is effective for 
     years beginning after December 31, 2000.

D. Elective Deferrals Not Taken into Account for Purposes of Deduction 
 Limits (sec. 204 of the House bill, sec. 204 of the Senate amendment, 
                       and sec. 404 of the Code)


                              Present Law

       Employer contributions to one or more qualified retirement 
     plans are deductible subject to certain limits. In general, 
     the deduction limit depends on the kind of plan.
       In the case of a defined benefit pension plan or a money 
     purchase pension plan, the employer generally may deduct the 
     amount necessary to satisfy the minimum funding cost of the 
     plan for the year. If a defined benefit pension plan has more 
     than 100 participants, the maximum amount deductible is at 
     least equal to the plan's unfunded current liabilities.
       In the case of a profit-sharing or stock bonus plan, the 
     employer generally may deduct an amount equal to 15 percent 
     of compensation of the employees covered by the plan for the 
     year.
       If an employer sponsors both a defined benefit pension plan 
     and a defined contribution plan that covers some of the same 
     employees (or a money purchase pension plan and another kind 
     of defined contribution plan), the total deduction for all 
     plans for a plan year generally is limited to the greater of 
     (1) 25 percent of compensation or (2) the contribution 
     necessary to meet the minimum funding requirements of the 
     defined benefit pension plan for the year (or the amount of 
     the plan's unfunded current liabilities, in the case of a 
     plan with more than 100 participants).
       For purposes of the deduction limits, employee elective 
     deferral contributions to a section 401(k) plan are treated 
     as employer contributions and, thus, are subject to the 
     generally applicable deduction limits.
       Subject to certain exceptions, nondeductible contributions 
     are subject to a 10-percent excise tax.


                               House Bill

       Under the House bill, elective deferral contributions are 
     not subject to the deduction limits, and the application of a 
     deduction limitation to any other employer contribution to a 
     qualified retirement plan does not take into account elective 
     deferral contributions.
       Effective date.--The House bill is effective for years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

E. Repeal of Coordination Requirements for Deferred Compensation Plans 
 of State and Local Governments and Tax-Exempt Organizations (sec. 205 
 of the House bill, sec. 205 of the Senate amendment, and sec. 457 of 
                               the Code)


                              Present Law

       Compensation deferred under an eligible deferred 
     compensation plan of a tax-exempt or State and local 
     government employer (a ``section 457 plan'') is not 
     includible in gross income until paid or made available. In 
     general, the maximum permitted annual deferral under such a 
     plan is the lesser of (1) $8,000 (in 2000) or (2) 33\1/3\ 
     percent of compensation. The $8,000 limit is indexed for 
     inflation in $500 increments.
       The $8,000 limit (as modified under the catch-up rule), 
     applies to all deferrals under all section 457 plans in which 
     the individual participates. In addition, in applying the 
     $8,000 limit, contributions under a tax-sheltered annuity 
     (``section 403(b) annuity''), elective deferrals under a 
     qualified cash or deferred arrangement (``section 401(k) 
     plan''), salary reduction contributions under a simplified 
     employee pension plan (``SEP''), and contributions under a 
     SIMPLE plan are taken into account. Further, the amount 
     deferred under a section 457 plan is taken into account in 
     applying a special catch-up rule for section 403(b) 
     annuities.


                               House Bill

       The House bill repeals the rules coordinating the section 
     457 dollar limit with contributions under other types of 
     plans.13
---------------------------------------------------------------------------
     \13\ The limits on deferrals under a section 457 plan are 
     modified under other provisions of the House bill.
---------------------------------------------------------------------------
       Effective date.--The House bill is effective for years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

  F. Eliminate IRS User Fees for Certain Requests Regarding Employer 
                   Plans (sec. 206 of the House bill)


                              Present Law

       An employer that maintains a retirement plan for the 
     benefit of its employees may request from the Internal 
     Revenue Service (``IRS'') a determination as to whether the 
     form of the plan satisfies the requirements

[[Page H10973]]

     applicable to tax-qualified plans (sec. 401(a)). In order to 
     obtain a determination letter on the qualified status of the 
     plan, the employer must pay a user fee. The Secretary 
     determines the user fee to be made for various types of 
     requests, subject to statutory minimum requirements for 
     average fees based on the category of the request. The user 
     fee for a employee plan determination letter request may 
     range from $125 to $1,250, depending upon the scope of the 
     request and the type and format of the plan.14
---------------------------------------------------------------------------
     \14\ Authorization for the user fees was originally enacted 
     in section 10511 of the Revenue Act of 1987 (Pub. L. No. 100-
     203, December 22, 1987). The authorization was extended 
     through September 30, 2003, by Public Law Number 104-117 (An 
     Act to provide that members of the Armed Forces preforming 
     services for the peacekeeping efforts in Bosnia and 
     Herzegovina, Croatia, and Macedonia shall be entitled to tax 
     benefits in the same manner as if such services were 
     performed in a combat zone, and for other purposes (March 20, 
     1996)).
---------------------------------------------------------------------------
       In general, a qualified plan which does not meet the 
     qualification requirements as a result of a disqualifying 
     provision may be amended retroactively to comply with such 
     requirements if the necessary amendments are adopted within 
     the remedial amendment period. The remedial amendment period 
     with respect to plan amendments needed to reflect changes in 
     the law generally ends by the due date for the employer's tax 
     return for the taxable year in which the change in the law 
     occurs. The Secretary is authorized to extend the otherwise 
     applicable remedial amendment period. Pursuant to this 
     authority, the Secretary has provided extended remedial 
     amendment periods with respect to recent legislation 
     affecting qualified plans.15
---------------------------------------------------------------------------
     \15\ See, e.g., Rev. Proc. 99-23, 1999-16 IRB 6.
---------------------------------------------------------------------------


                               House Bill

       Under the House bill, a small employer (100 or fewer 
     employees) is not required to pay a user fee for any 
     determination letter request with respect to the qualified 
     status of a retirement plan that the employer maintains, if 
     the request is made within the first 5 plan years of the 
     plan. The House bill applies only to requests by employers 
     for determination letters concerning the qualified retirement 
     plans they maintain. Therefore, a sponsor of a prototype plan 
     is required to pay a user fee for a request for a 
     notification letter, opinion letter, or similar ruling. A 
     small employer that adopts a prototype plan, however, is not 
     required to pay a user fee for a determination letter request 
     with respect to the employer's plan.
       Effective date.--The House bill is effective for 
     determination letter requests made after December 31, 2000.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement follows the House bill, with the 
     following modification. Under the conference agreement, a 
     small employer also is not required to pay a user fee for a 
     determination letter request made prior to the end of a 
     remedial amendment period beginning within the first 5 plan 
     years of the plan. In addition, determination letter requests 
     for which user fees are not required under the conference 
     agreement are not taken into account in determining average 
     user fees.

F. Deduction Limits (sec. 207 of the House bill, sec. 206 of the Senate 
                  amendment, and sec. 404 of the Code)


                              Present Law

       Employer contributions to one or more qualified retirement 
     plans are deductible subject to certain limits. In general, 
     the deduction limit depends on the kind of plan. Subject to 
     certain exceptions, nondeductible contributions are subject 
     to a 10-percent excise tax.
       In the case of a defined benefit pension plan or a money 
     purchase pension plan, the employer generally may deduct the 
     amount necessary to satisfy the minimum funding cost of the 
     plan for the year. If a defined benefit pension plan has more 
     than 100 participants, the maximum amount deductible is at 
     least equal to the plan's unfunded current liabilities.
       In some cases, the amount of deductible contributions is 
     limited by compensation. In the case of a profit-sharing or 
     stock bonus plan, the employer generally may deduct an amount 
     equal to 15 percent of compensation of the employees covered 
     by the plan for the year.
       If an employer sponsors both a defined benefit pension plan 
     and a defined contribution plan that covers some of the same 
     employees (or a money purchase pension plan and another kind 
     of defined contribution plan), the total deduction for all 
     plans for a plan year generally is limited to the greater of 
     (1) 25 percent of compensation or (2) the contribution 
     necessary to meet the minimum funding requirements of the 
     defined benefit pension plan for the year (or the amount of 
     the plan's unfunded current liabilities, in the case of a 
     plan with more than 100 participants).
       In the case of an employee stock ownership plan (``ESOP''), 
     principal payments on a loan used to acquire qualifying 
     employer securities are deductible up to 25 percent of 
     compensation.
       For purposes of the deduction limits, employee elective 
     deferral contributions to a qualified cash or deferred 
     arrangement (``section 401(k) plan'') are treated as employer 
     contributions and, thus, are subject to the generally 
     applicable deduction limits.16
---------------------------------------------------------------------------
     \16\ Another provision in the House bill provides that 
     elective deferrals are not subject to the deduction limits.
---------------------------------------------------------------------------
       For purposes of the deduction rules, compensation generally 
     includes only taxable compensation, and thus does not include 
     salary reduction amounts, such as elective deferrals under a 
     section 401(k) plan or a tax-sheltered annuity (``section 
     403(b) annuity''), elective contributions under a deferred 
     compensation plan of a tax-exempt organization or a State or 
     local government (``section 457 plan''), and salary reduction 
     contributions under a section 125 cafeteria plan. For 
     purposes of the contribution limits under section 415, 
     compensation does include such salary reduction amounts.


                               House Bill

       Under the House bill, the definition of compensation for 
     purposes of the deduction rules includes salary reduction 
     amounts treated as compensation under section 415. In 
     addition, the annual limitation on the amount of deductible 
     contributions to a profit-sharing or stock bonus plan is 
     increased from 15 percent to 20 percent of compensation of 
     the employees covered by the plan for the year.
       Effective date.--The House bill is effective for years 
     beginning after December 31, 2000.


                            Senate Amendment

       Under the Senate amendment, the definition of compensation 
     for purposes of the deduction rules includes salary reduction 
     amounts treated as compensation under section 415. In 
     addition, the annual limitation on the amount of deductible 
     contributions to a profit-sharing or stock bonus plan is 
     increased from 15 percent to 25 percent of compensation of 
     the employees covered by the plan for the year. Also, the 
     Senate amendment provides that, except to the extent provided 
     in regulations, a money purchase pension plan is treated like 
     a profit-sharing or stock bonus plan for purposes of the 
     deduction rules.


                          Conference Agreement

       The conference agreement follows the Senate amendment. The 
     conferees intend that the Treasury regulations authorized by 
     the conference agreement will address the need for an 
     appropriate increase of the annual limitation on the amount 
     of deductible contributions to a money purchase pension plan 
     by an amount that equals the minimum funding requirement 
     attributable to the prior plan year, but only to the extent 
     that such amount was not deductible for the prior taxable 
     year because the amount was not contributed prior to the due 
     date of the employer's federal income tax return for the 
     prior taxable year (even though the amount was contributed 
     within 8\1/2\ months after the end of the prior plan year and 
     therefore satisfied the minimum funding requirement).

H. Option To Treat Elective Deferrals as After-Tax Contributions (sec. 
 208 of the House bill, sec. 207 of the Senate amendment, and new sec. 
                           402A of the Code)


                              Present Law

       A qualified cash or deferred arrangement (``section 401(k) 
     plan'') or a tax-sheltered annuity (``section 403(b) 
     annuity'') may permit a participant to elect to have the 
     employer make payments as contributions to the plan or to the 
     participant directly in cash. Contributions made to the plan 
     at the election of a participant are elective deferrals. 
     Elective deferrals must be nonforfeitable and are subject to 
     an annual dollar limitation (sec. 402(g)) 17 and 
     distribution restrictions. In addition, elective deferrals 
     under a section 401(k) plan are subject to special 
     nondiscrimination rules. Elective deferrals that do not 
     exceed the annual dollar limitation (and earnings 
     attributable thereto) are not includible in a participant's 
     gross income until distributed from the plan.
---------------------------------------------------------------------------
     \17\ The limit on elective deferrals is $10,500 for 2000. 
     This limit is increased under another provision of the bill.
---------------------------------------------------------------------------
       Elective deferrals for a taxable year that exceed the 
     annual dollar limitation (``excess deferrals'') are 
     includible in gross income for the taxable year. If an 
     employee makes elective deferrals under a plan (or plans) of 
     a single employer that exceed the annual dollar limitation 
     (``excess deferrals''), then the plan may provide for the 
     distribution of the excess deferrals, with earnings thereon. 
     If the excess deferrals are made to more than one plan of 
     unrelated employers, then the plan may permit the individual 
     to allocate excess deferrals among the various plans, no 
     later than the March 1 (April 15 under the applicable 
     regulations) following the end of the taxable year. If excess 
     deferrals are distributed not later than April 15 following 
     the end of the taxable year, along with earnings attributable 
     to the excess deferrals, then the excess deferrals are not 
     again includible in income when distributed. The earnings are 
     includible in income in the year distributed. If excess 
     deferrals (and income thereon) are not distributed by the 
     applicable April 15, then the excess deferrals (and income 
     thereon) are includible in income when received by the 
     participant. Thus, excess deferrals that are not distributed 
     by the applicable April 15th are taxable both in the taxable 
     year when the deferral was made and in the year the 
     participant receives a distribution of the excess deferral.
       Individuals with adjusted gross income below certain levels 
     generally may make nondeductible contributions to a Roth IRA 
     and may convert a deductible or nondeductible IRA into a Roth 
     IRA. Amounts held in a Roth IRA that are withdrawn as a 
     qualified

[[Page H10974]]

     distribution are not includible in income, nor subject to the 
     additional 10-percent tax on early withdrawals. A qualified 
     distribution is a distribution that (1) is made after the 5-
     taxable year period beginning with the first taxable year for 
     which the individual made a contribution to a Roth IRA, and 
     (2) is made after attainment of age 59\1/2\, is made on 
     account of death or disability, or is a qualified special 
     purpose distribution (i.e., for first-time homebuyer 
     expenses of up to $10,000). A distribution from a Roth IRA 
     that is not a qualified distribution is includible in 
     income to the extent attributable to earnings, and is 
     subject to the 10-percent tax on early withdrawals (unless 
     an exception applies).18
---------------------------------------------------------------------------
     \18\ Early distributions of converted amounts may also 
     accelerate income inclusion of converted amounts that are 
     taxable under the 4-year rule applicable to 1998 conversions.
---------------------------------------------------------------------------


                               House Bill

       A section 401(k) plan or a section 403(b) annuity is 
     permitted to include a ``qualified plus contribution 
     program'' that permits a participant to elect to have all or 
     a portion of the participant's elective deferrals under the 
     plan treated as designated plus contributions. Designated 
     plus contributions are elective deferrals that the 
     participant designates as not excludable from the 
     participant's gross income.
       The annual dollar limitation on a participant's designated 
     plus contributions is the section 402(g) annual limitation on 
     elective deferrals, reduced by the participant's elective 
     deferrals that the participant does not designate as 
     designated plus contributions. Designated plus contributions 
     are treated as any other elective deferral for purposes of 
     nonforfeitability requirements and distribution restrictions. 
     Under a section 401(k) plan, designated plus contributions 
     also are treated as any other elective deferral for purposes 
     of the special nondiscrimination requirements.
       The plan is required to establish a separate account, and 
     maintain separate recordkeeping, for a participant's 
     designated plus contributions (and earnings allocable 
     thereto). A qualified distribution from a participant's 
     designated plus contributions account is not includible in 
     the participant's gross income. A qualified distribution is a 
     distribution that is made after the end of a specified 
     nonexclusion period and that is (1) made on or after the date 
     on which the participant attains age 59\1/2\, (2) made to a 
     beneficiary (or to the estate of the participant) on or after 
     the death of the participant, or (3) attributable to the 
     participant's being disabled.19 The nonexclusion 
     period is the 5-year-taxable period beginning with the 
     earlier of (1) the first taxable year for which the 
     participant made a designated plus contribution to any 
     designated plus contribution account established for the 
     participant under the plan, or (2) if the participant has 
     made a rollover contribution to the designated plus 
     contribution account that is the source of the distribution 
     from a designated plus contribution account established for 
     the participant under another plan, the first taxable year 
     for which the participant made a designated plus contribution 
     to the previously established account.
---------------------------------------------------------------------------
     \19\ A qualified special purpose distribution, as defined 
     under the rules relating to Roth IRAs, does not qualify as a 
     tax-free distribution from a designated plus contributions 
     account.
---------------------------------------------------------------------------
       A distribution from a designated plus contributions account 
     that is a corrective distribution of an elective deferral 
     (and income allocable thereto) that exceeds the section 
     402(g) annual limit on elective deferrals is not a qualified 
     distribution.
       A participant is permitted to roll over a distribution from 
     a designated plus contributions account only to another 
     designated plus contributions account or a Roth IRA of the 
     participant.
       The Secretary of the Treasury is directed to require the 
     plan administrator of each section 401(k) plan or section 
     403(b) annuity that permits participants to make designated 
     plus contributions to make such returns and reports regarding 
     designated plus contributions to the Secretary, plan 
     participants and beneficiaries, and other persons that the 
     Secretary may designate.
       Effective date.--The House bill is effective for taxable 
     years beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     that the Senate amendment refers to designated plus 
     contributions as ``Roth contributions.''
       The Senate amendment also includes additional 
     clarifications in the legislative history. The Senate 
     amendment provides that it is intended that the Secretary 
     generally will not permit retroactive designations of 
     elective deferrals as Roth contributions. The Senate 
     amendment also clarifies that Roth contributions to a section 
     403(b) annuity are treated the same as other salary reduction 
     contributions to the annuity (except that Roth contributions 
     are includible in gross income). The Senate amendment 
     provides that it is intended that the Secretary will provide 
     ordering rules regarding the return of excess contributions 
     under the special nondiscrimination rules (pursuant to sec. 
     401(k)(8)) in the event a participant has made both Roth 
     contributions and regular elective contributions. It is 
     intended that such rules will generally permit a plan to 
     allow participants to designate which contributions are 
     returned first or to permit the plan to specify which 
     contributions are returned first.


                          Conference Agreement

       The conference agreement follows the Senate amendment. The 
     conference agreement clarifies the treatment of excess 
     deferrals to the extent attributable to excess Roth 
     contributions. In general, the conference agreement conforms 
     the treatment of excess Roth contributions to the treatment 
     of excess deferrals attributable to non-Roth elective 
     deferrals. If excess Roth contributions (including earnings 
     thereon) are distributed no later than the April 15th 
     following the taxable year, then the Roth contributions are 
     not includible in gross income as a result of the 
     distribution, because such contributions are includible in 
     gross income when made. Earnings on such excess contributions 
     are treated the same as earnings on excess deferrals 
     distributed no later than April 15th, i.e., they are 
     includible in income when distributed. If excess Roth 
     contributions are not distributed no later than the 
     applicable April 15th, then such contributions (and earnings 
     thereon) are taxable when distributed. Thus, as is the case 
     with excess elective deferrals that are not distributed by 
     the applicable April 15th, the contributions are includible 
     in income in the year when made and again when distributed 
     from the plan. Earnings on such contributions are taxable 
     when received.
       It is intended that the Secretary will provide ordering 
     rules regarding the return of excess deferrals in the event a 
     participant has made both Roth contributions and regular 
     contributions to the plan. It is intended that such rules 
     will generally permit a plan to allow participants to 
     designate which contributions are returned first or to 
     permit the plan to specify which contributions are 
     returned first. It is also intended that the Secretary 
     will provide ordering rules to determine the extent to 
     which a distribution consists of excess Roth 
     contributions.

  Subtitle C. Enhancing Fairness for Women (secs. 421-427 of the bill)

A. Additional Salary Reduction Catch-Up Contributions (sec. 301 of the 
House bill, sec. 301 of the Senate amendment, and sec. 414 of the Code)


                              Present Law

     Elective deferral limitations
       Under present law, under certain salary reduction 
     arrangements, an employee may elect to have the employer make 
     payments as contributions to a plan on behalf of the 
     employee, or to the employee directly in cash. Contributions 
     made at the election of the employee are called elective 
     deferrals.
       The maximum annual amount of elective deferrals that an 
     individual may make to a qualified cash or deferred 
     arrangement (a ``401(k) plan''), a tax-sheltered annuity 
     (``section 403(b) annuity'') or a salary reduction simplified 
     employee pension plan (``SEP'') is $10,500 (for 2000). The 
     maximum annual amount of elective deferrals that an 
     individual may make to a SIMPLE plan is $6,000. These limits 
     are indexed for inflation in $500 increments.
     Section 457 plans
       The maximum annual deferral under a deferred compensation 
     plan of a State or local government or a tax-exempt 
     organization (a ``section 457 plan'') is the lesser of (1) 
     $8,000 (for 2000) or (2) 33\1/3\ percent of compensation. The 
     $8,000 dollar limit is indexed for inflation in $500 
     increments. Under a special catch-up rule, the section 457 
     plan may provide that, for one or more of the participant's 
     last 3 years before retirement, the otherwise applicable 
     limit is increased to the lesser of (1) $15,000 or (2) the 
     sum of the otherwise applicable limit for the year plus the 
     amount by which the limit applicable in preceding years of 
     participation exceeded the deferrals for that year.


                               House Bill

       The provision provides that the otherwise applicable dollar 
     limit on elective deferrals under a section 401(k) plan, 
     section 403(b) annuity, or SIMPLE, or deferrals under a 
     section 457 plan are increased for individuals who have 
     attained age 50 by the end of the year.20 
     Additional contributions are permitted to be made by an 
     individual who has attained age 50 before the end of the plan 
     year and with respect to whom no other elective deferrals may 
     otherwise be made to the plan for the year because of the 
     application of any limitation of the Code (e.g., the annual 
     limit on elective deferrals) or of the plan. Under the 
     provision, the additional amount of elective contributions 
     that are permitted to be made by an eligible individual 
     participating in such a plan is the lesser of (1) $5,000, or 
     (2) the participant's compensation for the year reduced by 
     any other elective deferrals of the participant for the 
     year.21 This $5,000 amount is indexed for 
     inflation in $500 increments in 2006 and thereafter.
---------------------------------------------------------------------------
     \20\ Another provision of the bill increases the dollar limit 
     on elective deferrals under such arrangements.
     \21\ In the case of a section 457 plan, this catch-up rule 
     does not apply during the participant's last 3 years before 
     retirement (in those years, the regularly applicable dollar 
     limit is doubled).
---------------------------------------------------------------------------
       Catch-up contributions made under the provision are not 
     subject to any other contribution limits and are not taken 
     into account in applying other contribution limits. Such 
     contributions are subject to applicable nondiscrimination 
     rules.22
---------------------------------------------------------------------------
     \22\ Another provision of the bill provides that elective 
     contributions are deductible without regard to the otherwise 
     applicable deduction limits.
---------------------------------------------------------------------------
       An employer is permitted to make matching contributions 
     with respect to catch-up

[[Page H10975]]

     contributions. Any such matching contributions are subject to 
     the normally applicable rules.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                            Senate Amendment

       The bill provides that individuals who have attained age 50 
     may be permitted to make additional catch-up elective 
     contributions to employer-sponsored retirement 
     plans.23
---------------------------------------------------------------------------
     \23\ Another provision of the bill provides for catch-up 
     contributions to IRAs.
---------------------------------------------------------------------------
       In the case of employer-sponsored retirement plans, the 
     provision applies to elective deferrals under a section 
     401(k) plan, section 403(b) annuity, SIMPLE, or a section 457 
     plan. Additional contributions may be made by an individual 
     who has attained age 50 before the end of the plan year and 
     with respect to whom no other elective deferrals may 
     otherwise be made to the plan for the year because of the 
     application of any limitation of the Code (e.g., the annual 
     limit on elective deferrals) or of the plan.24 
     Under the bill, the additional amount of elective 
     contributions that could be made by an eligible individual 
     participating in such a plan is the lesser of (1) the 
     applicable percent of the maximum dollar amount of elective 
     deferrals otherwise excludable from the gross income of the 
     participant for the year (under sec. 402(g)) or (2) the 
     participant's compensation for the year reduced by any other 
     elective deferrals of the participant for the 
     year.25 The applicable percent is 10 percent in 
     2001, and increases by 10 percentage points until the 
     applicable percent is 50 in 2005 and thereafter.
---------------------------------------------------------------------------
     \24\ A plan is not required to permit participants to make 
     catch-up contributions.
     \25\ In the case of a section 457 plans, this catch-up rule 
     does not apply during the participant's last 3 years before 
     retirement. Under another provision in the bill, in those 
     years, the regularly applicable dollar limit is doubled.
---------------------------------------------------------------------------
       Catch-up contributions made under the bill are not subject 
     to any other contribution limits and are not taken into 
     account in applying other contribution limits. In addition, 
     such contributions are not subject to otherwise applicable 
     nondiscrimination rules or the top-heavy rules.
       An employer is permitted to make matching contributions 
     with respect to catch-up contributions. Any such matching 
     contributions are subject to the normally applicable rules.
       Effective date.--The provision is effective for 
     contributions in taxable years beginning after December 31, 
     2000.


                          Conference Agreement

       The conference agreement follows the House bill, with a 
     modification. Although catch- up contributions are subject to 
     applicable nondiscrimination rules, a plan will not be 
     treated as failing to meet the applicable nondiscrimination 
     requirements under section 401(a)(4) with respect to 
     benefits, rights, and features if the plan allows all 
     eligible individuals participating in the plan to make the 
     same election with respect to catch-up contributions. For 
     purposes of this rule, all plans of related employers are 
     treated as a single plan.

   B. Equitable Treatment for Contributions of Employees to Defined 
Contribution Plans (sec. 302 of the House bill, sec. 302 of the Senate 
         amendment and secs. 413(b), 415, and 452 of the Code)


                              Present Law

       Present law imposes limits on the contributions that may be 
     made to tax-favored retirement plans.
     Defined contribution plans
       In the case of a tax-qualified defined contribution plan, 
     the limit on annual additions that can be made to the plan on 
     behalf of an employee is the lesser of $30,000 (for 2000) or 
     25 percent of the employee's compensation (sec. 415(c)). 
     Annual additions include employer contributions, including 
     contributions made at the election of the employee (i.e., 
     employee elective deferrals), after-tax employee 
     contributions, and any forfeitures allocated to the employee. 
     For this purpose, compensation means taxable compensation of 
     the employee, plus elective deferrals, and similar salary 
     reduction contributions. A separate limit applies to benefits 
     under a defined benefit plan.
       For years before January 1, 2000, an overall limit applies 
     if an employee is a participant in both a defined 
     contribution plan and a defined benefit plan of the same 
     employer.
     Tax-sheltered annuities
       In the case of a tax-sheltered annuity (a ``section 403(b) 
     annuity''), the annual contribution generally cannot exceed 
     the lesser of the exclusion allowance or the section 415(c) 
     defined contribution limit. The exclusion allowance for a 
     year is equal to 20 percent of the employee's includible 
     compensation, multiplied by the employee's years of service, 
     minus excludable contributions for prior years under 
     qualified plans, tax-sheltered annuities or section 457 plans 
     of the employer.
       In addition to this general rule, employees of nonprofit 
     educational institutions, hospitals, home health service 
     agencies, health and welfare service agencies, and churches 
     may elect application of one of several special rules that 
     increase the amount of the otherwise permitted contributions. 
     The election of a special rule is irrevocable; an employee 
     may not elect to have more than one special rule apply.
       Under one special rule, in the year the employee separates 
     from service, the employee may elect to contribute up to the 
     exclusion allowance, without regard to the 25 percent of 
     compensation limit under section 415. Under this rule, the 
     exclusion allowance is determined by taking into account no 
     more than 10 years of service.
       Under a second special rule, the employee may contribute up 
     to the lesser of: (1) the exclusion allowance; (2) 25 percent 
     of the participant's includible compensation; or (3) $15,000.
       Under a third special rule, the employee may elect to 
     contribute up to the section 415(c) limit, without regard to 
     the exclusion allowance. If this option is elected, then 
     contributions to other plans of the employer are also taken 
     into account in applying the limit.
       For purposes of determining the contribution limits 
     applicable to section 403(b) annuities, includible 
     compensation means the amount of compensation received from 
     the employer for the most recent period which may be counted 
     as a year of service under the exclusion allowance. In 
     addition, includible compensation includes elective deferrals 
     and similar salary reduction amounts.
       Treasury regulations include provisions regarding 
     application of the exclusion allowance in cases where the 
     employee participates in a section 403(b) annuity and a 
     defined benefit plan. The Taxpayer Relief Act of 1997 
     directed the Secretary of the Treasury to revise these 
     regulations, effective for years beginning after December 31, 
     1999, to reflect the repeal of the overall limit on 
     contributions and benefits.
     Section 457 plans
       Compensation deferred under an eligible deferred 
     compensation plan of a tax-exempt or State and local 
     governmental employer (a ``section 457 plan'') is not 
     includible in gross income until paid or made available. In 
     general, the maximum permitted annual deferral under such a 
     plan is the lesser of (1) $8,000 (in 2000) or (2) 33\1/3\ 
     percent of compensation. The $8,000 limit is increased for 
     inflation in $500 increments.


                               House Bill

     Increase in defined contribution plan limit
       The bill increases the 25 percent of compensation 
     limitation on annual additions under a defined contribution 
     plan to 100 percent.26
---------------------------------------------------------------------------
     \26\ Another provision of the bill increases the defined 
     contribution plan dollar limit.
---------------------------------------------------------------------------
     Conforming limits on tax-sheltered annuities
       The bill repeals the exclusion allowance applicable to 
     contributions to tax-sheltered annuities. Thus, such 
     annuities are subject to the limits applicable to tax-
     qualified plans.
       The bill also directs the Secretary of the Treasury to 
     revise the regulations relating to the exclusion allowance 
     under section 403(b)(2) to render void the requirement that 
     contributions to a defined benefit plan be treated as 
     previously excluded amounts for purposes of the exclusion 
     allowance. For taxable years beginning after December 31, 
     1999, the regulatory provisions regarding the exclusion 
     allowance are to be applied as if the requirement that 
     contributions to a defined benefit plan be treated as 
     previously excluded amounts for purposes of the exclusion 
     allowance were void.
     Section 457 plans
       The bill increases the 33\1/3\ percent of compensation 
     limitation on deferrals under a section 457 plan to 100 
     percent of compensation.
     Effective date
       The provision generally is effective for years beginning 
     after December 31, 2000. The provision regarding the 
     regulations under section 403(b)(2) is effective on the date 
     of enactment.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

 C. Faster Vesting of Employer Matching Contributions (Sec. 303 of the 
House Bill, Sec. 303 of the Senate Amendment, and Sec. 411 of the Code)


                              Present Law

       Under present law, a plan is not a qualified plan unless a 
     participant's employer-provided benefit vests at least as 
     rapidly as under one of two alternative minimum vesting 
     schedules. A plan satisfies the first schedule if a 
     participant acquires a nonforfeitable right to 100 percent of 
     the participant's accrued benefit derived from employer 
     contributions upon the completion of 5 years of service. A 
     plan satisfies the second schedule if a participant has a 
     nonforfeitable right to at least 20 percent of the 
     participant's accrued benefit derived from employer 
     contributions after 3 years of service, 40 percent after 4 
     years of service, 60 percent after 5 years of service, 80 
     percent after 6 years of service, and 100 percent after 7 
     years of service.27
---------------------------------------------------------------------------
     \27\ The minimum vesting requirements are also contained in 
     Title I of the Employee Retirement Income Security Act of 
     1974, as amended (``ERISA'').
---------------------------------------------------------------------------


                               House Bill

       The bill applies faster vesting schedules to employer 
     matching contributions. Under the provision, employer 
     matching contributions must vest at least as rapidly as under 
     one of the following two alternative minimum vesting 
     schedules. A plan satisfies the first

[[Page H10976]]

     schedule if a participant acquires a nonforfeitable right to 
     100 percent of employer matching contributions upon the 
     completion of 3 years of service. A plan satisfies the second 
     schedule if a participant has a nonforfeitable right to 20 
     percent of employer matching contributions for each year of 
     service beginning with the participant's second year of 
     service and ending with 100 percent after 6 years of service.
       Effective date.--The provision is effective for 
     contributions for plan years beginning after December 31, 
     2000, with a delayed effective date for plans maintained 
     pursuant to a collective bargaining agreement. The provision 
     does not apply to any employee until the employee has an hour 
     of service after the effective date. In applying the new 
     vesting schedule, service before the effective date must be 
     taken into account.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

D. Simplify and Update the Minimum Distribution Rules (sec. 304 of the 
 House bill, sec. 304 of the Senate amendment, and secs. 401(a)19 and 
                            457 of the Code)


                              Present Law

     In general
       Minimum distribution rules apply to all types of tax-
     favored retirement vehicles, including qualified plans, 
     individual retirement arrangements (``IRAs''), tax-sheltered 
     annuities (``section 403(b) annuities''), and eligible 
     deferred compensation plans of tax-exempt and State and local 
     government employers (``section 457 plans''). In general, 
     under these rules, distribution of minimum benefits must 
     begin no later than the required beginning date. Minimum 
     distribution rules also apply to benefits payable with 
     respect to a plan participant who has died. Failure to comply 
     with the minimum distribution rules results in an excise tax 
     imposed on the individual plan participant equal to 50 
     percent of the required minimum distribution not distributed 
     for the year. The excise tax can be waived if the individual 
     establishes to the satisfaction of the Secretary that the 
     shortfall in the amount distributed was due to reasonable 
     error and reasonable steps are being taken to remedy the 
     shortfall.
     Distributions prior to the death of the individual
       In the case of distributions prior to the death of the plan 
     participant, the minimum distribution rules are satisfied if 
     either (1) the participant's entire interest in the plan is 
     distributed by the required beginning date, or (2) the 
     participant's interest in the plan is to be distributed (in 
     accordance with regulations), beginning not later than the 
     required beginning date, over a permissible period. The 
     permissible periods are (1) the life of the participant, (2) 
     the lives of the participant and a designated beneficiary, 
     (3) the life expectancy of the participant, or (4) the joint 
     life and last survivor expectancy of the participant and a 
     designated beneficiary. In calculating minimum required 
     distributions, life expectancies of the participant and the 
     participant's spouse may be recomputed annually.
       In the case of qualified plans, tax-sheltered annuities, 
     and section 457 plans, the required beginning date is the 
     April 1 of the calendar year following the later of (1) the 
     calendar year in which the employee attains age 70\1/2\ or 
     (2) the calendar year in which the employee retires. However, 
     in the case of a 5-percent owner of the employer, 
     distributions are required to begin no later than the April 1 
     of the calendar year following the year in which the 5-
     percent owner attains age 70\1/2\. If commencement of 
     benefits is delayed beyond age 70\1/2\ from a defined benefit 
     plan, then the accrued benefit of the employee must be 
     actuarially increased to take into account the period after 
     age 70\1/2\ in which the employee was not receiving benefits 
     under the plan.28 In the case of distributions 
     from an IRA other than a Roth IRA, the required beginning 
     date is the April 1 following the calendar year in which the 
     IRA owner attains age 70\1/2\. The pre-death minimum 
     distribution rules do not apply to Roth IRAs.
---------------------------------------------------------------------------
     \28\ State and local government plans and church plans are 
     not required to actuarially increase benefits that begin 
     after age 70\1/2\.
---------------------------------------------------------------------------
       In general, under proposed regulations, in order to satisfy 
     the minimum distribution rules, annuity payments under a 
     defined benefit plan must be paid in periodic payments made 
     at intervals not longer than one year over a permissible 
     period, and must be nonincreasing, or increase only as a 
     result of the following: (1) cost-of-living adjustments; (2) 
     cash refunds of employee contributions; (3) benefit increases 
     under the plan; or (4) an adjustment due to death of the 
     employee's beneficiary. In the case of a defined contribution 
     plan, the minimum required distribution is determined by 
     dividing the employee's benefit by the applicable life 
     expectancy.
     Distributions after the death of the plan participant
       The minimum distribution rules also apply to distributions 
     to beneficiaries of deceased participants. In general, if the 
     participant dies after minimum distributions have begun, the 
     remaining interest must be distributed at least as rapidly as 
     under the minimum distribution method being used as of the 
     date of death. If the participant dies before minimum 
     distributions have begun, then the entire remaining interest 
     must generally be distributed within 5 years of the 
     participant's death. The 5-year rule does not apply if 
     distributions begin within 1 year of the participant's death 
     and are payable over the life of a designated beneficiary or 
     over the life expectancy of a designated beneficiary. A 
     surviving spouse beneficiary is not required to begin 
     distribution until the date the deceased participant would 
     have attained age 70\1/2\.


                               House Bill

     Modification of post-death distribution rules
       The provision applies the present-law rules applicable if 
     the participant dies before distribution of minimum benefits 
     has begun to all post-death distributions. Thus, in general, 
     if the employee dies before his or her entire interest has 
     been distributed, distribution of the remaining interest is 
     required to be made within 5 years of the date of death, or 
     begin within one year of the date of death and paid over the 
     life or life expectancy of a designated beneficiary. In the 
     case of a surviving spouse, distributions are not required to 
     begin until the April 1 of the calendar year following the 
     year in which the surviving spouse attains age 70\1/2\. 
     Minimum distributions that have already begun could be 
     recalculated under the new rule.
     Reduction in excise tax
       The bill reduces the excise tax on failures to satisfy the 
     minimum distribution rules to 10 percent of the amount that 
     was required to be distributed but was not distributed.
     Treasury regulations
       The Secretary of the Treasury is directed to update, 
     simplify, and finalize the regulations relating to the 
     minimum distribution rules and to reflect in such regulations 
     current life expectancies and to revise the required 
     distribution methods so that, under reasonable assumptions, 
     the amount of the required distribution does not decrease 
     over time. The regulations are to permit recalculation of 
     distributions for future years to reflect the change in 
     the regulations, and to permit the election of a new 
     designated beneficiary and method of calculating life 
     expectancy. The regulations are to be effective for years 
     beginning after December 31, 2000, and are to apply to 
     individuals regardless of whether minimum distributions 
     had begun.
     Effective date
       In general, the provision is effective for years beginning 
     after December 31, 2000. The provision regarding Treasury 
     regulations is effective on the date of enactment.


                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     that the Senate amendment provides that final Treasury 
     regulations are to be issued no later than December 31, 2001, 
     and the Senate amendment does not require that such 
     regulations are to be effective for years beginning after 
     December 31, 2000.
       Effective date.--Same as the House bill.


                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--In general, the provision is effective for 
     years beginning after December 31, 2000. The provision 
     regarding Treasury regulations is effective on the date of 
     enactment. The conference agreement also provides a 
     transition rule with respect to the provision providing that 
     the required beginning date in the case of a surviving spouse 
     is no earlier than the April 1 of the calendar year after the 
     surviving spouse attains age 70\1/2\. The conference 
     agreement provides that, in the case of an individual who 
     died before the date of enactment and prior to his or her 
     required beginning date and whose beneficiary is the 
     surviving spouse, minimum distributions to the surviving 
     spouse are not required to begin earlier than the date 
     distributions would have been required to begin under present 
     law.

   E. Clarification of Tax Treatment of Division of Section 457 Plan 
  Benefits Upon Divorce (sec. 305 of the House bill, sec. 305 of the 
              Senate amendment, and sec. 457 of the Code)


                              Present Law

       Under present law, benefits provided under a qualified 
     retirement plan for a participant may not be assigned or 
     alienated to creditors of the participant, except in very 
     limited circumstances. One exception to the prohibition on 
     assignment or alienation rule is a qualified domestic 
     relations order (``QDRO''). A QDRO is a domestic relations 
     order that creates or recognizes a right of an alternate 
     payee to any plan benefit payable with respect to a 
     participant, and that meets certain procedural requirements.
       Under present law, a distribution from a governmental plan 
     or a church plan is treated as made pursuant to a QDRO if it 
     is made pursuant to a domestic relations order that creates 
     or recognizes a right of an alternate payee to any plan 
     benefit payable with respect to a participant. Such 
     distributions are not required to meet the procedural 
     requirements that apply with respect to distributions from 
     qualified plans.
       Under present law, amounts distributed from a qualified 
     plan generally are taxable to the participant in the year of 
     distribution. However, if amounts are distributed to the 
     spouse (or former spouse) of the participant by reason of a 
     QDRO, the benefits are taxable to the spouse (or former 
     spouse).

[[Page H10977]]

     Amounts distributed pursuant to a QDRO to an alternate payee 
     other than the spouse (or former spouse) are taxable to the 
     plan participant.
       Section 457 of the Internal Revenue Code provides rules for 
     deferral of compensation by an individual participating in an 
     eligible deferred compensation plan (``section 457 plan'') of 
     a tax-exempt or State and local government employer. The QDRO 
     rules do not apply to section 457 plans.


                               House Bill

       The bill applies the taxation rules for qualified plan 
     distributions pursuant to a QDRO to distributions made 
     pursuant to a domestic relations order from a section 457 
     plan. In addition, a section 457 plan is not treated as 
     violating the restrictions on distributions from such plans 
     due to payments to an alternate payee under a QDRO. The 
     special rule applicable to governmental plans and church 
     plans applies for purposes of determining whether a 
     distribution is pursuant to a QDRO.
       Effective date.--The provision is effective for transfers, 
     distributions, and payments made after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill, with a 
     modification to the effective date.
       Effective date.--The provision relating to taxation of 
     distributions is effective for transfers, distributions, and 
     payments made after December 31, 2000. The other provisions 
     are effective on January 1, 2001, except that, in the case of 
     a domestic relations order entered into before such date, the 
     plan administrator (1) shall treat such order as a QDRO if 
     the administrator is paying benefits pursuant to the order 
     and (2) may treat any other such order entered into before 
     the effective date as a QDRO.


                          Conference Agreement

       The conference agreement follows the House bill.

  F. Modifications Relating to Hardship Withdrawals (sec. 306 of the 
 House bill, sec. 306 of the Senate amendment and secs. 401(k) and 402 
                              of the Code)


                              Present Law

       Elective deferrals under a qualified cash or deferred 
     arrangement (a ``section 401(k) plan'') may not be 
     distributable prior to the occurrence of one or more 
     specified events. One event upon which distribution is 
     permitted is the financial hardship of the employee. 
     Applicable Treasury regulations 29 provide that a 
     distribution is made on account of hardship only if the 
     distribution is made on account of an immediate and heavy 
     financial need of the employee and is necessary to satisfy 
     the heavy need.
---------------------------------------------------------------------------
     \29\ Treas. Reg. sec. 1.401(k)-1.
---------------------------------------------------------------------------
       The Treasury regulations provide a safe harbor under which 
     a distribution may be deemed necessary to satisfy an 
     immediate and heavy financial need. One requirement of this 
     safe harbor is that the employee be prohibited from making 
     elective contributions and employee contributions to the plan 
     and all other plans maintained by the employer for at least 
     12 months after receipt of the hardship distribution.
       Under present law, hardship withdrawals of elective 
     deferrals from a qualified cash or deferred arrangement (or 
     403(b) annuity) are not eligible rollover distributions. 
     Other types of hardship distributions, e.g., employer 
     matching contributions distributed on account of hardship, 
     are eligible rollover distributions. Different withholding 
     rules apply to distributions that are eligible rollover 
     distributions and to distributions that are not eligible 
     rollover distributions. Eligible rollover distributions that 
     are not directly rolled over are subject to withholding at a 
     flat rate of 20-percent. Distributions that are not eligible 
     rollover distributions are subject to elective withholding. 
     Periodic distributions are subject to withholding as if the 
     distribution were wages; nonperiodic distributions are 
     subject to withholding at a rate of 10 percent. In either 
     case, the individual may elect not to have withholding apply.


                               House Bill

       The Secretary of the Treasury is directed to revise the 
     applicable regulations to reduce from 12 months to 6 months 
     the period during which an employee must be prohibited from 
     making elective contributions and employee contributions in 
     order for a distribution to be deemed necessary to satisfy an 
     immediate and heavy financial need. The revised regulations 
     are to be effective for years beginning after December 31, 
     2000.
       Effective date.--The provision is effective on the date of 
     enactment.


                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     that the Senate amendment also provides that any hardship 
     distribution made pursuant to the terms of a plan is not an 
     eligible rollover distribution. Thus, such distributions may 
     not be rolled over, and are subject to the withholding rules 
     applicable to distributions that are not eligible rollover 
     distributions. The bill does not modify the rules under which 
     hardship distributions may be made. For example, as under 
     present law, hardship distributions of qualified employer 
     matching contributions may only be made under the rules 
     applicable to elective deferrals.
       Effective date.--The provision directing the Secretary to 
     revise the rules relating to safe harbor hardship 
     distributions is effective on the date of enactment.
       The provision providing that hardship distributions are not 
     eligible rollover distributions is effective for 
     distributions made after December 31, 2000. The Secretary has 
     the authority to issue transitional guidance with respect to 
     this provision to provide sufficient time for plans to 
     implement the new rule.


                          Conference Agreement

       The conference agreement follows the Senate amendment.
       Effective date.--The provision directing the Secretary to 
     revise the regulations relating to safe harbor hardship 
     distributions is effective on the date of enactment. The 
     provision relating to rollover of hardship distributions is 
     generally effective for distributions after December 31, 
     2001. For distributions occurring during calendar year 2001, 
     a plan may treat a distribution that is a hardship 
     distribution under the terms of the plan as not an eligible 
     rollover distribution for all purposes of the Code. Thus, for 
     example, if a plan treats a hardship distribution made in 
     2001 as not an eligible rollover distribution, the 
     distribution could not be rolled over and the withholding 
     rules applicable to distributions that are not eligible 
     rollover distributions would apply.

 G. Pension Coverage for Domestic and Similar Workers (sec. 307 of the 
              Senate amendment and sec. 4972 of the Code)


                              Present Law

       Under present law, within limits, employers may make 
     deductible contributions to qualified retirement plans for 
     employees. Subject to certain exceptions, a 10-percent excise 
     tax applies to nondeductible contributions to such plans.
       Employers of household workers may establish a pension plan 
     for such workers. Contributions to such plans are not 
     deductible because they are not made in connection with a 
     trade or business of the employer.


                               House Bill

       No provision.


                            Senate Amendment

       Under the provision, the 10-percent excise tax on 
     nondeductible contributions does not apply to contributions 
     to a SIMPLE plan or a SIMPLE IRA which are nondeductible 
     solely because the contributions are not a trade or 
     business expense under section 162 because they are not 
     made in connection with a trade or business of the 
     employer. Thus, for example, employers of household 
     workers could make contributions to such plans without 
     imposition of the excise tax. As under present law, the 
     contributions are not deductible. The present-law rules 
     applicable to such plans, e.g., contribution limits and 
     nondiscrimination rules, continue to apply. The provision 
     does not apply with respect to contributions on behalf of 
     the employer and members of his or her family.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                          Conference Agreement

       The conference follows the Senate amendment, except that 
     the conference agreement does not limit the waiver of the 
     excise tax to contributions to a SIMPLE plan or SIMPLE IRA. 
     The conference agreement provides that the 10-percent excise 
     tax on nondeductible contributions does not apply to 
     contributions to a SIMPLE IRA or plan, SEP, or qualified plan 
     which are not deductible solely because the contributions are 
     not made in connection with a trade or business of the 
     taxpayer. Thus, for example, employers of household workers 
     could make contributions to such plans without imposition of 
     the excise tax. As under present law, the contributions are 
     not deductible. The present-law rules applicable to such 
     plans, e.g., contribution limits and nondiscrimination rules, 
     continue to apply. The provision does not apply with respect 
     to contributions on behalf of the employer and members of his 
     or her family. For this purpose, family members include the 
     individual, the individual's brothers and sisters, the 
     brothers and sisters of the individual's parents and 
     grandparents, and ancestors and lineal descendants of the 
     foregoing, and a spouse of any of the foregoing.
       No inference is intended with respect to application of the 
     excise tax under present law to contributions that are not 
     deductible because they are not made in connection with a 
     trade or business of the employer.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.

 Subtitle D. Increasing Portability for Participants (secs. 431-439 of 
                               the bill)

A. Rollovers of Retirement Plan and IRA Distributions (secs. 401-403 of 
  the House bill, sec. 401-403 of the Senate amendment and secs. 401, 
              402, 403(b), 408, 457, and 3405 of the Code)


                              Present Law

     In general
       Present law permits the rollover of funds from a tax-
     favored retirement plan to another tax-favored retirement 
     plan. The rules that apply depend on the type of plan 
     involved. Similarly, the rules regarding the tax treatment of 
     amounts that are not rolled over depend on the type of plan 
     involved.
     Distributions from qualified plans
       Under present law, an ``eligible rollover distribution'' 
     from a tax-qualified employer-sponsored retirement plan may 
     be rolled

[[Page H10978]]

     over tax free to a traditional individual retirement 
     arrangement (``IRA'') 30 or another qualified 
     plan.31 An ``eligible rollover distribution'' 
     means any distribution to an employee of all or any portion 
     of the balance to the credit of the employee in a qualified 
     plan, except the term does not include (1) any distribution 
     which is one of a series of substantially equal periodic 
     payments made (a) for the life (or life expectancy) of the 
     employee or the joint lives (or joint life expectancies) of 
     the employee and the employee's designated beneficiary, or 
     (b) for a specified period of 10 years or more, (2) any 
     distribution to the extent such distribution is required 
     under the minimum distribution rules, and (3) certain 
     hardship distributions. The maximum amount that can be rolled 
     over is the amount of the distribution includible in income, 
     i.e., after-tax employee contributions cannot be rolled over. 
     Qualified plans are not required to accept rollovers.
---------------------------------------------------------------------------
     \30\ A ``traditional'' IRA refers to IRAs other than Roth 
     IRAs or SIMPLE IRAs. All references to IRAs in the 
     description of this provision refer only to traditional IRAs.
     \31\ An eligible rollover distribution may either be rolled 
     over by the distributee within 60 days of the date of the 
     distribution or, as described below, directly rolled over by 
     the distributing plan.
---------------------------------------------------------------------------
     Distributions from tax-sheltered annuities
       Eligible rollover distributions from a tax-sheltered 
     annuity (``section 403(b) annuity'') may be rolled over into 
     an IRA or another section 403(b) annuity. Distributions from 
     a section 403(b) annuity cannot be rolled over into a tax-
     qualified plan. Section 403(b) annuities are not required to 
     accept rollovers.
     IRA distributions
       Distributions from a traditional IRA, other than minimum 
     required distributions, can be rolled over into another IRA. 
     In general, distributions from an IRA cannot be rolled over 
     into a qualified plan or section 403(b) annuity. An exception 
     to this rule applies in the case of so-called ``conduit 
     IRAs.'' Under the conduit IRA rule, amounts can be rolled 
     from a qualified plan into an IRA and then subsequently 
     rolled back to another qualified plan if the amounts in the 
     IRA are attributable solely to rollovers from a qualified 
     plan. Similarly, an amount may be rolled over from a section 
     403(b) annuity to an IRA and subsequently rolled back into a 
     section 403(b) annuity if the amounts in the IRA are 
     attributable solely to rollovers from a section 403(b) 
     annuity.
     Distributions from section 457 plans
       A ``section 457 plan'' is an eligible deferred compensation 
     plan of a State or local government or tax-exempt employer 
     that meets certain requirements. In some cases, different 
     rules apply under section 457 to governmental plans and plans 
     of tax-exempt employers. For example, governmental section 
     457 plans are like qualified plans in that plan assets are 
     required to be held in a trust for the exclusive benefit of 
     plan participants and beneficiaries. In contrast, benefits 
     under a section 457 plan of a tax-exempt employer are 
     unfunded, like nonqualified deferred compensation plans of 
     private employers.
       Section 457 benefits can be transferred to another section 
     457 plan. Distributions from a section 457 plan cannot be 
     rolled over to another section 457 plan, a qualified plan, a 
     section 403(b) annuity, or an IRA.
     Rollovers by surviving spouses
       A surviving spouse that receives an eligible rollover 
     distribution may roll over the distribution into an IRA, but 
     not a qualified plan or section 403(b) annuity.
     Direct rollovers and withholding requirements
       Qualified plans and section 403(b) annuities are required 
     to provide that a plan participant has the right to elect 
     that an eligible rollover distribution be directly rolled 
     over to another eligible retirement plan. If the plan 
     participant does not elect the direct rollover option, then 
     withholding is required on the distribution at a 20-percent 
     rate.32
---------------------------------------------------------------------------
     \32\ Distributions from qualified plans and section 403(b) 
     annuities that are not eligible rollover distributions are 
     subject to elective withholding. Periodic distributions are 
     subject to withholding as if the distribution were wages; 
     nonperiodic distributions are subject to withholding at a 
     rate of 10 percent. In either case, the individual may elect 
     not to have withholding apply.
---------------------------------------------------------------------------
       The direct rollover rules do not apply to section 457 
     plans. Distributions from a section 457 plan are subject to 
     wage withholding.
     Notice of eligible rollover distribution
       The plan administrator of a qualified plan or a section 
     403(b) annuity is required to provide a written explanation 
     of rollover rules to individuals who receive a distribution 
     eligible for rollover. In general, the notice is to be 
     provided within a reasonable period of time before making the 
     distribution and is to include an explanation of (1) the 
     provisions under which the individual may have the 
     distribution directly rolled over to another eligible 
     retirement plan, (2) the provision that requires withholding 
     if the distribution is not directly rolled over, (3) the 
     provision under which the distribution may be rolled over 
     within 60 days of receipt, and (4) if applicable, certain 
     other rules that may apply to the distribution. The Secretary 
     has provided more specific guidance regarding timing and 
     content of the notice and has issued a safe harbor notice 
     that is deemed to satisfy the requirements regarding the 
     content of the notice.
     Taxation of distributions
       As is the case with the rollover rules, different rules 
     regarding taxation of benefits apply to different types of 
     tax-favored arrangements. In general, distributions from a 
     qualified plan, section 403(b) annuity, or IRA are includible 
     in income in the year received. In certain cases, 
     distributions from qualified plans are eligible for capital 
     gains treatment and averaging. These rules do not apply to 
     distributions from another type of plan. Distributions from a 
     qualified plan, IRA, and section 403(b) annuity generally are 
     subject to an additional 10-percent early withdrawal tax if 
     made before age 59\1/2\. There are a number of exceptions to 
     the early withdrawal tax. Some of the exceptions apply to all 
     three types of plans, and others apply only to certain types 
     of plans. For example, the 10-percent early withdrawal tax 
     does not apply to IRA distributions for educational expenses, 
     but does apply to similar distributions from qualified plans 
     and section 403(b) annuities. Benefits under a section 457 
     plan are generally includible in income when paid or made 
     available. The 10-percent early withdrawal tax does not apply 
     to section 457 plans.


                               house bill

     In general
       The bill provides that eligible rollover distributions from 
     qualified retirement plans, section 403(b) annuities, and 
     governmental section 457 plans generally may be rolled over 
     to any of such plans or arrangements. Similarly, 
     distributions from an IRA generally may be rolled over into a 
     qualified plan, section 403(b) annuity, or governmental 
     section 457 plan. The direct rollover and withholding rules 
     are extended to distributions from a governmental section 457 
     plan, and such plans are required to provide the written 
     notification regarding eligible rollover 
     distributions.33 The rollover notice (with respect 
     to all plans) is required to include a description of the 
     provisions under which distributions from the plan to which 
     the distribution is rolled over may be subject to 
     restrictions and tax consequences different than those 
     applicable to distributions from the distributing plan. 
     Qualified plans, section 403(b) annuities, and section 457 
     plans are not required to accept rollovers.
---------------------------------------------------------------------------
     \33\ The elective withholding rules applicable to 
     distributions from qualified plans and section 403(b) 
     annuities that are not eligible rollover distributions are 
     also extended to distributions from governmental section 457 
     plans. Thus, periodic distributions from governmental section 
     457 plans that are not eligible rollover distributions are 
     subject to withholding as if the distribution were wages and 
     nonperiodic distributions from such plans that are not 
     eligible rollover distributions are subject to withholding at 
     a 10-percent rate. In either case, the individual may elect 
     not to have withholding apply.
---------------------------------------------------------------------------
       Some special rules apply in certain cases. A distribution 
     from a qualified plan is not eligible for capital gains or 
     averaging treatment if there was a rollover to the plan that 
     would not have been permitted under present law. Thus, in 
     order to preserve capital gains and averaging treatment for a 
     qualified plan distribution that is rolled over, the rollover 
     must be made to a ``conduit IRA'' as under present law, and 
     then rolled back into a qualified plan. Amounts distributed 
     from a section 457 plan are subject to the early withdrawal 
     tax to the extent the distribution consists of amounts 
     attributable to rollovers from another type of plan. Section 
     457 plans are required to separately account for such 
     amounts.
     Rollover of after-tax contributions
       The bill provides that employee after-tax contributions may 
     be rolled over into another qualified plan or a traditional 
     IRA. In the case of a rollover from a qualified plan to 
     another qualified plan, the rollover may be accomplished only 
     through a direct rollover. In addition, a qualified plan is 
     permitted to accept rollovers of after-tax contributions only 
     if the plan provides separate accounting for such 
     contributions (and earnings thereon). After-tax contributions 
     (including nondeductible contributions to an IRA) may not be 
     rolled over from an IRA into a qualified plan, tax-sheltered 
     annuity, or section 457 plan.
       In the case of a distribution from a traditional IRA that 
     is rolled over into an eligible rollover plan that is not an 
     IRA, the distribution is attributed first to amounts other 
     than after-tax contributions.
     Expansion of spousal rollovers
       The bill provides that surviving spouses may roll over 
     distributions to a qualified plan, section 403(b) annuity, or 
     governmental section 457 plan in which the surviving spouse 
     participates.
     Treasury regulations
       The Secretary is directed to prescribe rules necessary to 
     carry out the provisions. Such rules may include, for 
     example, reporting requirements and mechanisms to address 
     mistakes relating to rollovers. It is expected that the IRS 
     will develop forms to assist individuals who roll over after-
     tax contributions to an IRA in keeping track of such 
     contributions. Such forms could, for example, expand Form 
     8606--Nondeductible IRAs, to include information regarding 
     after-tax contributions.
     Effective date
       The provisions are effective for distributions after 
     December 31, 2000.


                            senate amendment

       The Senate amendment is the same as the House bill.
       Effective date.--The provisions are effective for 
     distributions after December 31, 2001.


                          conference agreement

       The conference agreement follows the House bill and the 
     Senate amendment. The

[[Page H10979]]

     conferees intend that the Secretary will revise the safe 
     harbor rollover notice that plans may use to satisfy the 
     rollover requirements. Until issuance of a new notice, the 
     conferees intend that a plan will be treated as complying 
     with the notice requirement if the plan makes a reasonable, 
     good faith effort to comply. For example, the bill requires 
     that the rollover notice include a description of the 
     provisions under which distributions from the eligible 
     retirement plan receiving the distribution may be subject to 
     restrictions and tax consequences which are different from 
     those applicable to distributions from the plan making the 
     distribution. A plan will be treated as making a reasonable 
     good faith effort to comply with this requirement if the 
     notice states that distributions from the plan to which the 
     rollover is made may be subject to different restrictions and 
     tax consequences than those that apply to distributions from 
     the plan from which the rollover is made.
       Effective date.--The provisions are effective for 
     distributions after December 31, 2000, except that the 
     provision allowing after-tax contributions to be rolled over 
     is effective for distributions after December 31, 2001.

 B. Waiver of 60-Day Rule (sec. 404 of the House bill, sec. 404 of the 
          Senate amendment, and secs. 402 and 408 of the Code)


                              present law

       Under present law, amounts received from an IRA or 
     qualified plan may be rolled over tax free if the rollover is 
     made within 60 days of the date of the distribution. The 
     Secretary does not have the authority to waive the 60-day 
     requirement.


                               house bill

       The bill provides that the Secretary may waive the 60-day 
     rollover period if the failure to waive such requirement 
     would be against equity or good conscience, including cases 
     of casualty, disaster, or other events beyond the reasonable 
     control of the individual subject to such requirement.
       Effective date.--The provision applies to distributions 
     made after December 31, 2000.


                            senate amendment

       The Senate amendment is the same as the House bill.


                          conference agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

C. Treatment of Forms of Distribution (Sec. 405 of the House bill, Sec. 
      405 of the Senate Amendment, and Sec. 411(d)(6) of the Code)


                              present law

       An amendment of a qualified retirement plan may not 
     decrease the accrued benefit of a plan participant. An 
     amendment is treated as reducing an accrued benefit if, with 
     respect to benefits accrued before the amendment is adopted, 
     the amendment has the effect of either (1) eliminating 
     or reducing an early retirement benefit or a retirement-
     type subsidy, or (2) except as provided by Treasury 
     regulations, eliminating an optional form of benefit (sec. 
     411(d)(6)).34
---------------------------------------------------------------------------
     \34\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
       The Treasury Department has recently issued final 
     regulations specifying situations in which optional forms of 
     benefit may be eliminated. These regulations provide that, if 
     certain requirements are satisfied, optional forms of benefit 
     may be eliminated or reduced in connection with the voluntary 
     transfer of benefits between defined contribution plans in 
     connection with an asset or stock acquisition, merger, or 
     other similar transaction involving a change in employer or 
     in connection with the participant's change in employment 
     status to an employment status with respect to which the 
     participant is not entitled to additional allocations under 
     the transferor plan.35 The regulations also permit 
     defined contribution plans to eliminate or restrict optional 
     forms of benefit if the participant is entitled to receive a 
     single-sum distribution that is otherwise identical to the 
     optional form of benefit that is being eliminated or 
     restricted.36
---------------------------------------------------------------------------
     \35\ Treas. reg. sec. 1.411(d)-4, Q&A-3, paragraph (b).
     \36\ Treas. reg. sec. 1.411(d)-4 Q&A-2, paragraph (e).
---------------------------------------------------------------------------
       A plan that is a transferee of a plan that is subject to 
     the joint and survivor rules is also subject to those rules.


                               house bill

     Transfers between defined contribution plans
       A defined contribution plan to which benefits are 
     transferred is not treated as reducing a participant's or 
     beneficiary's accrued benefit even though it does not provide 
     all of the forms of distribution previously available under 
     the transferor plan if (1) the plan receives from another 
     defined contribution plan a direct transfer of the 
     participant's or beneficiary's benefit accrued under the 
     transferor plan, or the plan results from a merger or other 
     transaction that has the effect of a direct transfer 
     (including consolidations of benefits attributable to 
     different employers within a multiple employer plan), (2) the 
     terms of both the transferor plan and the transferee plan 
     authorize the transfer, (3) the transfer occurs pursuant to a 
     voluntary election by the participant or beneficiary that is 
     made after the participant or beneficiary received a notice 
     describing the consequences of making the election, (4) in 
     the case of a plan that provides for an annuity as the normal 
     form of distribution in accordance with the joint and 
     survivor rules (sec. 417), the participant's spouse (if any) 
     consents to the transfer in a manner similar to the consent 
     required by section 417, and (5) the transferee plan allows 
     the participant or beneficiary to receive distribution of his 
     or her benefit under the transferee plan in the form of a 
     single sum distribution. The bill does not modify the rules 
     relating to survivor annuities under section 417. Thus, as 
     under present law, a plan that is a transferee of a plan 
     subject to the joint and survivor rules is also subject to 
     those rules.
     Elimination of optional forms of benefit in the case of 
         defined contribution plans offering a single-sum 
         distribution
       Except to the extent provided by the Secretary of the 
     Treasury in regulations, a defined contribution plan is not 
     treated as reducing a participant's accrued benefit if (1) a 
     plan amendment eliminates a form of distribution previously 
     available under the plan, (2) a single sum distribution is 
     available to the participant at the same time or times as the 
     form of distribution eliminated by the amendment, and (3) the 
     single sum distribution is based on the same or greater 
     portion of the participant's accrued benefit as the form of 
     distribution eliminated by the amendment.
     Early retirement benefits, retirement-type subsidies, and 
         optional forms of benefit
       The provision directs the Secretary of the Treasury to 
     provide by regulations that the prohibitions against 
     eliminating or reducing an early retirement benefit, a 
     retirement-type subsidy, or an optional form of benefit shall 
     not apply to plan amendments that do not adversely affect the 
     rights of participants in a material manner but that do 
     eliminate or reduce early retirement benefits, retirement-
     type subsidies, and optional forms of benefit that create 
     significant burdens and complexities for a plan and its 
     participants.
       It is intended that the factors to be considered in 
     determining whether an amendment has a materially adverse 
     effect on a participant would include (1) all of the 
     participant's early retirement benefits, retirement-type 
     subsidies, and optional forms of benefits that are reduced or 
     eliminated by the amendment, (2) the extent to which early 
     retirement benefits, retirement-type subsidies, and optional 
     forms of benefit in effect with respect to a participant 
     after the amendment effective date provide rights that are 
     comparable to the rights that are reduced or eliminated by 
     the plan amendment, (3) the number of years before the 
     participant attains normal retirement age under the plan (or 
     early retirement age, as applicable), (4) the size of the 
     participant's benefit that is affected by the plan amendment, 
     in relation to the amount of the participant's compensation, 
     and (5) the number of years before the plan amendment is 
     effective.
     Treasury regulations
       The Secretary is directed to issue, not later than December 
     31, 2001, final regulations under section 411(d)(6), 
     including regulations required under the provision.
     Effective date
       The provision is effective for years beginning after 
     December 31, 2000, except that the direction to the Secretary 
     is effective on the date of enactment.


                            senate amendment

     Transfers between defined contribution plans
       The Senate amendment provision regarding transfers of 
     defined contribution plan benefits is the same as the House 
     bill, except that the Senate amendment does not include the 
     requirement that, in the case of a plan with an annuity as 
     the normal form of distribution, the spouse, if any, 
     must consent to the transfer. As under present law, a plan 
     that is a transferee of a plan subject to the joint and 
     survivor rules is subject to the joint and survivor rules.
     Elimination of optional forms of benefit in the case of 
         defined contribution plans offering a single-sum 
         distribution
       The Senate amendment does not include the provision 
     regarding elimination of forms of distribution in the case of 
     plans offering a lump sum.
     Early retirement benefits, retirement-type subsidies, and 
         optional forms of benefit
       The Senate amendment directs the Secretary of the Treasury 
     to provide by regulations that the prohibitions against 
     eliminating or reducing an early retirement benefit, a 
     retirement-type subsidy, or an optional form of benefit do 
     not apply to plan amendments that eliminate or reduce early 
     retirement benefits, retirement-type subsidies, and optional 
     forms of benefit that create significant burdens and 
     complexities for a plan and its participants, but only if 
     such an amendment does not adversely affect the rights of any 
     participant in more than a de minimis manner.
       For this purpose, the factors to be considered in 
     determining whether an amendment has more than a de minimis 
     adverse effect on any participant include (1) all of the 
     participant's early retirement benefits, retirement-type 
     subsidies, and optional forms of benefits that are reduced or 
     eliminated by the amendment, (2) the extent to which early 
     retirement benefits, retirement-type subsidies, and optional 
     forms of benefit in effect with respect to a participant 
     after the amendment effective date provide rights that are 
     comparable to the rights that are reduced or eliminated by 
     the plan amendment, (3) the number of years before the 
     participant attains normal retirement age under the plan (or 
     early retirement age, as applicable), (4)

[[Page H10980]]

     the amount of the participant's benefit that is affected by 
     the plan amendment, in relation to the amount of the 
     participant's compensation,37 and (5) the number 
     of years before the plan amendment is effective.
---------------------------------------------------------------------------
     \37\ In determining the amount of any subsidy under the 
     provision, it is expected that the regulations will value the 
     subsidy by reference to the date on which it would be the 
     most valuable with respect to the participant.
---------------------------------------------------------------------------
     Treasury regulations
       The provision regarding issuance of Treasury regulations is 
     the same as the House bill.
     Effective date
       The effective date of the Senate amendment provision is the 
     same as the House bill.38
---------------------------------------------------------------------------
     \38\ The Senate amendment also amends the corresponding 
     provisions of ERISA.
---------------------------------------------------------------------------


                          Conference Agreement

     Transfers between defined contribution plans
       The conference agreement follows the Senate amendment.
     Elimination of optional forms of benefit in the case of 
         defined contribution plans offering a single-sum 
         distribution
       The conference agreement follows the House bill.
     Early retirement benefits, retirement-type subsidies, and 
         optional forms of benefit
       The conference agreement follows the Senate amendment. As 
     under the Senate amendment, the Secretary is directed to 
     provide by regulation that the prohibitions against 
     eliminating or reducing an early retirement benefit, a 
     retirement-type subsidy, or an optional form of benefit do 
     not apply to plan amendments that eliminate or reduce early 
     retirement benefits, retirement-type subsidies, and optional 
     forms of benefit that create significant burdens and 
     complexities for a plan and its participants and that do not 
     adversely affect the rights of any participant in more than a 
     de minimis manner.
       For this purpose, the factors to be considered in 
     determining whether an amendment has more than a de minimis 
     adverse effect on any participant include (1) all of the 
     participant's early retirement benefits, retirement-type 
     subsidies, and optional forms of benefits that are reduced or 
     eliminated by the amendment, (2) the extent to which early 
     retirement benefits, retirement-type subsidies, and optional 
     forms of benefit in effect with respect to a participant 
     after the amendment effective date provide rights that are 
     comparable to the rights that are reduced or eliminated by 
     the plan amendment, (3) the number of years before the 
     participant attains normal retirement age under the plan (or 
     early retirement age, as applicable), (4) the amount of the 
     participant's benefit that is affected by the plan amendment, 
     in relation to the amount of the participant's 
     compensation,39 and (5) the number of years before 
     the plan amendment is effective.
---------------------------------------------------------------------------
     \39\ In determining the amount of any subsidy under the 
     provision, it is expected that the regulations will value the 
     subsidy by reference to the date on which it would be the 
     most valuable with respect to the participant.
---------------------------------------------------------------------------
       This provision of the bill does not affect the rules 
     relating to involuntary cash outs (sec. 411(a)(11)) 
     40 or survivor annuity requirements (sec. 417). 
     Accordingly, if a participant is entitled to protections of 
     the joint and survivor rules, those protections may not be 
     eliminated. The intent of the provision authorizing 
     regulations is solely to permit the elimination of early 
     retirement benefits, retirement-type subsidies, or optional 
     forms of benefit that have no more than a de minimis effect 
     on any participant but create disproportionate burdens and 
     complexities for a plan and its participants.
---------------------------------------------------------------------------
     \40\ Another provision of the bill provides that rollover 
     amounts are not taken into account for purposes of the cash-
     out rules.
---------------------------------------------------------------------------
       For example, assume the following. Employer A acquires 
     employer B and merges B's defined benefit plan into A's 
     defined benefit plan. The defined benefit plan maintained by 
     B before the merger provides an early retirement subsidy for 
     individuals age 55 with a specified number of years of 
     service. E1 and E2 are were employees of B and who 
     transfer to A in connection with the merger. E1 is 25 
     years old and has compensation of $40,000. The present 
     value of E's early retirement subsidy under B's plan is 
     $75. E2 is 50 years old and also has compensation of 
     $40,000. The present value of Y's early retirement subsidy 
     under B's plan is $10,000.
       Assume that A's plan has an early retirement subsidy for 
     individuals who have attained age 50 with a specified number 
     of years of service, but the subsidy is not the same as under 
     B's plan. Under A's plan, the present value of E2's early 
     retirement subsidy is $9,500. Maintenance of both subsidies 
     would create burdens for the plan and complexities for the 
     plan and its participants.
       Treasury regulations could permit E1's early retirement 
     subsidy under B's plan to be eliminated entirely (i.e., even 
     if A's plan did not have an early retirement subsidy). Taking 
     into account all relevant factors, including the value of the 
     benefit, E1's compensation, and the number of years until E1 
     would be eligible to receive the subsidy, the subsidy is de 
     minimis. Treasury regulations could permit E2's early 
     retirement subsidy under B's plan to be eliminated as to be 
     replaced by the subsidy under A's plan, because the 
     difference in the subsidies is de minimis. However, A's 
     subsidy could not be entirely eliminated.
     Treasury regulations
       The conference agreement follows the House bill and the 
     Senate amendment, except that the conference agreement 
     provides that the Secretary is to issue the required 
     regulations not later than December 31, 2002. Such 
     regulations are to be effective for plan years beginning 
     after December 31, 2002, or such earlier date as is specified 
     by the Secretary.
     Effective date
       The provision is effective for years beginning after 
     December 31, 2000, except that the direction to the Secretary 
     is effective on the date of enactment.

 D. Rationalization of Restrictions on Distributions (sec. 406 of the 
House bill, sec. 406 of the Senate amendment, and secs. 401(k), 403(b), 
                          and 457 of the Code)


                              present law

       Elective deferrals under a qualified cash or deferred 
     arrangement (``section 401(k) plan''), tax-sheltered annuity 
     (``section 403(b) annuity''), or an eligible deferred 
     compensation plan of a tax-exempt organization or State or 
     local government (``section 457 plan''), may not be 
     distributable prior to the occurrence of one or more 
     specified events. These permissible distributable events 
     include ``separation from service.''
       A separation from service occurs only upon a participant's 
     death, retirement, resignation or discharge, and not when the 
     employee continues on the same job for a different employer 
     as a result of the liquidation, merger, consolidation or 
     other similar corporate transaction. A severance from 
     employment occurs when a participant ceases to be employed by 
     the employer that maintains the plan. Under a so-called 
     ``same desk rule,'' a participant's severance from employment 
     does not necessarily result in a separation from 
     service.41
---------------------------------------------------------------------------
     \41\ Rev. Rul. 79-336, 1979-2 C.B. 187.
---------------------------------------------------------------------------
       In addition to separation from service and other events, a 
     section 401(k) plan that is maintained by a corporation may 
     permit distributions to certain employees who experience a 
     severance from employment with the corporation that maintains 
     the plan but does not experience a separation from service 
     because the employee continues on the same job for a 
     different employer as a result of a corporate transaction. If 
     the corporation disposes of substantially all of the assets 
     used by the corporation in a trade or business, a 
     distributable event occurs with respect to the accounts of 
     the employees who continue employment with the corporation 
     that acquires the assets. If the corporation disposes of its 
     interest in a subsidiary, a distributable event occurs with 
     respect to the accounts of the employees who continue 
     employment with the subsidiary.


                               house bill

       The bill modifies the distribution restrictions applicable 
     to section 401(k) plans, section 403(b) annuities, and 
     section 457 plans to provide that distribution may occur upon 
     severance from employment rather than separation from 
     service. In addition, the provisions for distribution from a 
     section 401(k) plan based upon a corporation's disposition of 
     its assets or a subsidiary is repealed; this special rule is 
     no longer be necessary as a result of the changes made by the 
     provision.
       Effective date.--The provision is effective for 
     distributions after December 31, 2000, regardless of when the 
     severance of employment occurred.


                            senate amendment

       The Senate amendment is the same as the House bill.


                          conference agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

 E. Purchase of Service Credit under Governmental Pension Plans (sec. 
  407 of the House bill, sec. 407 of the Senate amendment, and secs. 
                      403(b) and 457 of the Code)


                              present law

       A qualified retirement plan maintained by a State or local 
     government employer may provide that a participant may make 
     after-tax employee contributions in order to purchase 
     permissive service credit, subject to certain limits (sec. 
     415). Permissive service credit means credit for a period of 
     service recognized by the governmental plan only if the 
     employee voluntarily contributes to the plan an amount (as 
     determined by the plan) that does not exceed the amount 
     necessary to fund the benefit attributable to the period of 
     service and that is in addition to the regular employee 
     contributions, if any, under the plan.
       In the case of any repayment of contributions and earnings 
     to a governmental plan with respect to an amount previously 
     refunded upon a forfeiture of service credit under the plan 
     (or another plan maintained by a State or local government 
     employer within the same State), any such repayment is not 
     taken into account for purposes of the section 415 limits on 
     contributions and benefits. Also, service credit obtained as 
     a result of such a repayment is not considered permissive 
     service credit for purposes of the section 415 limits.
       A participant may not use a rollover or direct transfer of 
     benefits from a tax-sheltered annuity (``section 403(b) 
     annuity'') or an eligible deferred compensation plan of a 
     tax-exempt organization of a State or local government 
     (``section 457 plan'') to purchase permissive service credits 
     or repay contributions and earnings with respect to a 
     forfeiture of service credit.


                               house bill

       A participant in a State or local governmental plan is not 
     required to include in

[[Page H10981]]

     gross income a direct trustee-to-trustee transfer to a 
     governmental defined benefit plan from a section 403(b) 
     annuity or a section 457 plan if the transferred amount is 
     used (1) to purchase permissive service credits under the 
     plan, or (2) to repay contributions and earnings with respect 
     to an amount previously refunded under a forfeiture of 
     service credit under the plan (or another plan maintained by 
     a State or local government employer within the same State).
       Effective date.--The provision is effective for transfers 
     after December 31, 2000.


                            senate amendment

       The Senate amendment is the same as the House bill.


                          conference agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

  F. Employers May Disregard Rollovers for Purposes of Cash-Out Rules 
(sec. 408 of the House bill, sec. 408 of the Senate amendment, and sec. 
                        411(a)(11) of the Code)


                              Present Law

       If an qualified retirement plan participant ceases to be 
     employed by the employer that maintains the plan, the plan 
     may distribute the participant's nonforfeitable accrued 
     benefit without the consent of the participant and, if 
     applicable, the participant's spouse, if the present value of 
     the benefit does not exceed $5,000. If such an involuntary 
     distribution occurs and the participant subsequently returns 
     to employment covered by the plan, then service taken into 
     account in computing benefits payable under the plan after 
     the return need not include service with respect to which 
     a benefit was involuntarily distributed unless the 
     employee repays the benefit.42
---------------------------------------------------------------------------
     \42\ A similar provision is contained in Title I of ERISA.
---------------------------------------------------------------------------
       Generally, a participant may roll over an involuntary 
     distribution from a qualified plan to an IRA or to another 
     qualified plan.43
---------------------------------------------------------------------------
     \43\ Other provisions of the bill expand the kinds of plans 
     to which benefits may be rolled over.
---------------------------------------------------------------------------


                               House Bill

       For purposes of the cash-out rule, a plan is permitted to 
     provide that the present value of a participant's 
     nonforfeitable accrued benefit is determined without regard 
     to the portion of such benefit that is attributable to 
     rollover contributions (and any earnings allocable thereto).
       Effective date.--The provision is effective for 
     distributions after December 31, 2000.


                            senate amendment

       The Senate amendment is the same as the House bill.


                          conference agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

  G. Minimum Distribution and Inclusion Requirements For Section 457 
 Plans (sec. 409 of the House bill, sec. 409 of the Senate amendment, 
                       and sec. 457 of the Code)


                              Present Law

       A ``section 457 plan'' is an eligible deferred compensation 
     plan of a State or local government or tax-exempt employer 
     that meets certain requirements. For example, amounts 
     deferred under a section 457 plan cannot exceed certain 
     limits. Amounts deferred under a section 457 plan are 
     generally includible in income when paid or made available. 
     Amounts deferred under a plan of deferred compensation of a 
     State or local government or tax-exempt employer that does 
     not meet the requirements of section 457 are includible in 
     income when the amounts are not subject to a substantial risk 
     of forfeiture, regardless of whether the amounts have been 
     paid or made available.44
---------------------------------------------------------------------------
     \44\ This rule of inclusion does not apply to amounts 
     deferred under a tax-qualified retirement plan or similar 
     plans.
---------------------------------------------------------------------------
       Section 457 plans are subject to the minimum distribution 
     rules applicable to tax- qualified pension plans. In 
     addition, such plans are subject to additional minimum 
     distribution rules (sec. 457(d)(2)(B)).
       The limits on section 457 plans were first applied to plans 
     of tax-exempt employers pursuant to the Tax Reform Act of 
     1986 (the ``1986 Act''), generally effective for taxable 
     years beginning after December 31, 1986. The limitations of 
     section 457 do not apply to amounts deferred under a plan of 
     a tax-exempt employer by an individual covered under such a 
     plan on August 16, 1986, if the amounts (1) were deferred 
     from taxable years beginning before January 1, 1987, or (2) 
     are deferred from taxable years beginning after December 31, 
     1986, pursuant to an agreement that was in writing on August 
     16, 1986, and on such date provided for a deferral for each 
     taxable year covered by the agreement of a fixed amount or of 
     an amount determined pursuant to a fixed formula. The 
     provision in (2) ceases to apply if there is any modification 
     to the agreement or formula.


                               house bill

       The House bill provides that amounts deferred under a 
     section 457 plan of a State or local government are 
     includible in income when paid.
       The House bill also repeals the special minimum 
     distribution rules applicable to section 457 plans. Thus, 
     such plans are subject to the minimum distribution rules 
     applicable to qualified plans.
       Effective date.--The provision is effective for 
     distributions after December 31, 2000.


                            Senate Amendment

       The Senate amendment includes the House bill provisions.
       In addition, the Senate amendment modifies the transition 
     rule adopted in the 1986 Act relating to deferred 
     compensation plans of tax-exempt employers. Under the bill, 
     the transition rule applies to agreements providing cost-of-
     living adjustments to amounts that otherwise satisfy the 
     requirements of the transition rule. The grandfather does not 
     apply to the extent that the annual amount provided under 
     such an agreement exceeds the annual grandfathered amount 
     multiplied by the cumulative increase in the Consumer Price 
     Index (as published by the Department of Labor).
       Effective date.--The provision is generally effective for 
     distributions after December 31, 2000. The provision relating 
     to plans of tax-exempt organizations is effective for taxable 
     years ending after the date of enactment for cost-of-living 
     increases after September 1993.


                          conference agreement

       The conference agreement follows the House bill.

 Subtitle E. Strengthening Pension Security and Enforcement (secs. 441-
                            448 of the bill)

 A. Phase in Repeal of 155 Percent of Current Liability Funding Limit; 
 Deduction for Contributions to Fund Termination Liability (secs. 501 
 and 502 of the House bill, secs. 501 and 502 of the Senate amendment, 
        and secs. 404(a)(1), 412(c)(7), and 4972(c) of the Code)


                              present law

       Under present law, defined benefit pension plans are 
     subject to minimum funding requirements designed to ensure 
     that pension plans have sufficient assets to pay benefits. A 
     defined benefit pension plan is funded using one of a number 
     of acceptable actuarial cost methods.
       No contribution is required under the minimum funding rules 
     in excess of the full funding limit. The full funding limit 
     is generally defined as the excess, if any, of (1) the lesser 
     of (a) the accrued liability under the plan (including normal 
     cost) or (b) 155 percent of the plan's current liability, 
     over (2) the value of the plan's assets (sec. 
     412(c)(7)).45 In general, current liability is all 
     liabilities to plan participants and beneficiaries accrued to 
     date, whereas the accrued liability full funding limit is 
     based on projected benefits. The current liability full 
     funding limit is scheduled to increase as follows: 160 
     percent for plan years beginning in 2001 or 2002, 165 percent 
     for plan years beginning in 2003 and 2004, and 170 percent 
     for plan years beginning in 2005 and thereafter.46 
     In no event is a plan's full funding limit less than 90 
     percent of the plan's current liability over the value of the 
     plan's assets.
---------------------------------------------------------------------------
     \45\ The minimum funding requirements, including the full 
     funding limit, are also contained in title I of ERISA.
     \46\ As originally enacted in the Pension Protection Act of 
     1997, the current liability full funding limit was 150 
     percent of current liability. The Taxpayer Relief Act of 1997 
     increased the current liability full funding limit to 155 
     percent in 1999 and 2000, and adopted the scheduled increases 
     described in the text.
---------------------------------------------------------------------------
       An employer sponsoring a defined benefit pension plan 
     generally may deduct amounts contributed to satisfy the 
     minimum funding standard for the plan year. Contributions in 
     excess of the full funding limit generally are not 
     deductible. Under a special rule, an employer that sponsors a 
     defined benefit pension plan (other than a multiemployer 
     plan) which has more than 100 participants for the plan year 
     may deduct amounts contributed of up to 100 percent of the 
     plan's unfunded current liability.


                               house bill

     Current liability full funding limit
       The bill gradually increases and then repeals the current 
     liability full funding limit. The current liability full 
     funding limit is 160 percent of current liability for plan 
     years beginning in 2001, 165 percent for plan years beginning 
     in 2002, and 170 percent for plan years beginning in 2003. 
     The current liability full funding limit is repealed for plan 
     years beginning in 2004 and thereafter. Thus, in 2004 and 
     thereafter, the full funding limit will be the excess, if 
     any, of (1) the accrued liability under the plan (including 
     normal cost), over (2) the value of the plan's assets.
     Deduction for contributions to fund termination liability
       The special rule allowing a deduction for unfunded current 
     liability generally is extended to all defined benefit 
     pension plans, i.e., the provision applies to multiemployer 
     plans and plans with 100 or fewer participants. The special 
     rule does not apply to plans not covered by the PBGC 
     termination insurance program.47
---------------------------------------------------------------------------
     \47\ The PBGC termination insurance program does not cover 
     plans of professional service employers that have fewer than 
     25 participants.
---------------------------------------------------------------------------
       The bill also modifies the rule by providing that the 
     deduction is for up to 100 percent of unfunded termination 
     liability, determined as if the plan terminated at the end of 
     the plan year. In the case of a plan with less than 100 
     participants for the plan year, termination liability does 
     not include the liability attributable to benefit increases 
     for highly compensated employees resulting from a plan 
     amendment which was made or became effective, whichever is 
     later, within the last two years.
       Effective date.--The provision is effective for plan years 
     beginning after December 31, 2000.

[[Page H10982]]

                            senate amendment

       The Senate amendment is the same as the House bill.


                          conference agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

 B. Excise Tax Relief for Sound Pension Funding (sec. 503 of the House 
   bill, sec. 503 of the Senate amendment, and sec. 4972 of the Code)


                              present law

       Under present law, defined benefit pension plans are 
     subject to minimum funding requirements designed to ensure 
     that pension plans have sufficient assets to pay benefits. A 
     defined benefit pension plan is funded using one of a number 
     of acceptable actuarial cost methods.
       No contribution is required under the minimum funding rules 
     in excess of the full funding limit. The full funding limit 
     is generally defined as the excess, if any, of (1) the lesser 
     of (a) the accrued liability under the plan (including normal 
     cost) or (b) 155 percent of the plan's current liability, 
     over (2) the value of the plan's assets (sec. 412(c)(7)). In 
     general, current liability is all liabilities to plan 
     participants and beneficiaries accrued to date, whereas the 
     accrued liability full funding limit is based on projected 
     benefits. The current liability full funding limit is 
     scheduled to increase as follows: 160 percent for plan 
     years beginning in 2001 or 2002, 165 percent for plan 
     years beginning in 2003 and 2004, and 170 percent for plan 
     years beginning in 2005 and thereafter.48 In no 
     event is a plan's full funding limit less than 90 percent 
     of the plan's current liability over the value of the 
     plan's assets.
---------------------------------------------------------------------------
     \48\ As originally enacted in the Pension Protection Act of 
     1997, the current liability full funding limit was 150 
     percent of current liability. The Taxpayer Relief Act of 1997 
     increased the current liability full funding limit to 155 
     percent in 1999 and 2000, and adopted the scheduled increases 
     described in the text. Another proposal would gradually 
     increase and then repeal the current liability full funding 
     limit.
---------------------------------------------------------------------------
       An employer sponsoring a defined benefit pension plan 
     generally may deduct amounts contributed to satisfy the 
     minimum funding standard for the plan year. Contributions in 
     excess of the full funding limit generally are not 
     deductible. Under a special rule, an employer that sponsors a 
     defined benefit pension plan (other than a multiemployer 
     plan) which has more than 100 participants for the plan year 
     may deduct amounts contributed of up to 100 percent of the 
     plan's unfunded current liability.
       Present law also provides that contributions to defined 
     contribution plans are deductible, subject to certain 
     limitations.
       Subject to certain exceptions, an employer that makes 
     nondeductible contributions to a plan is subject to an excise 
     tax equal to 10 percent of the amount of the nondeductible 
     contributions for the year. The 10-percent excise tax does 
     not apply to contributions to certain terminating defined 
     benefit plans. The 10-percent excise tax also does not apply 
     to contributions of up to 6 percent of compensation to a 
     defined contribution plan for employer matching and employee 
     elective deferrals.


                               House Bill

       In determining the amount of nondeductible contributions, 
     the employer is permitted to elect not to take into account 
     contributions to a defined benefit pension plan except to the 
     extent they exceed the accrued liability full funding limit. 
     Thus, if an employer elects, contributions in excess of the 
     current liability full funding limit are not subject to the 
     excise tax on nondeductible contributions. An employer making 
     such an election for a year is not permitted to take 
     advantage of the present-law exceptions for certain 
     terminating plans and certain contributions to defined 
     contribution plans. The provision applies to terminated plans 
     as well as ongoing plans.
       Effective date.--The provision is effective for years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

 C. Notice of Significant Reduction in Plan Benefit Accruals (sec. 504 
  of the House bill, secs. 521-523 of the Senate amendment, and secs. 
           411(d) and 417(e) and new sec. 4980F of the Code)


                              Present Law

       Section 204(h) of Title I of ERISA provides that a defined 
     benefit pension plan or a money purchase pension plan may not 
     be amended so as to provide for a significant reduction in 
     the rate of future benefit accrual, unless, after adoption of 
     the plan amendment and not less than 15 days before the 
     effective date of the plan amendment, the plan administrator 
     provides a written notice (``section 204(h) notice''), 
     setting forth the plan amendment (or a summary of the 
     amendment written in a manner calculated to be understood by 
     the average plan participant) and its effective date. The 
     plan administrator must provide the section 204(h) notice to 
     each plan participant, each alternate payee under an 
     applicable qualified domestic relations order (``QDRO''), and 
     each employee organization representing participants in the 
     plan. The applicable Treasury regulations 49 
     provide, however, that a plan administrator need not provide 
     the section 204(h) notice to any participant or alternate 
     payee whose rate of future benefit accrual is reasonably 
     expected not to be reduced by the amendment, nor to an 
     employee organization that does not represent a participant 
     to whom the section 204(h) notice must be provided. In 
     addition, the regulations provide that the rate of future 
     benefit accrual is determined without regard to optional 
     forms of benefit, early retirement benefits, retirement-type 
     subsidiaries, ancillary benefits, and certain other rights 
     and features.
---------------------------------------------------------------------------
     \49\ Treas. Reg. sec. 1.411(d)-6.
---------------------------------------------------------------------------
       A covered amendment generally will not become effective 
     with respect to any participants and alternate payees whose 
     rate of future benefit accrual is reasonably expected to be 
     reduced by the amendment but who do not receive a section 
     204(h) notice. An amendment will become effective with 
     respect to all participants and alternate payees to whom the 
     section 204(h) notice was required to be provided if the plan 
     administrator (1) has made a good faith effort to comply with 
     the section 204(h) notice requirements, (2) has provided a 
     section 204(h) notice to each employee organization that 
     represents any participant to whom a section 204(h) notice 
     was required to be provided, (3) has failed to provide a 
     section 204(h) notice to no more than a de minimis percentage 
     of participants and alternate payees to whom a section 204(h) 
     notice was required to be provided, and (4) promptly upon 
     discovering the oversight, provides a section 204(h) notice 
     to each omitted participant and alternate payee.
       The Internal Revenue Code does not require any notice 
     concerning a plan amendment that provides for a significant 
     reduction in the rate of future benefit accrual.
       The Internal Revenue Code prohibits the reduction of a 
     participant's accrued benefit by plan amendment (sec. 
     411(d)(6)), and, for this purpose, except to the extent set 
     forth in Treasury regulations, treats the elimination or 
     reduction of an early retirement benefit or retirement-type 
     subsidy or an optional form of benefit as a reduction of a 
     participant's accrued benefit. However, this prohibition does 
     not prevent a plan amendment from ceasing or reducing future 
     accruals.
       In the case of a pension plan that is subject to the joint 
     and survivor annuity rules, the Internal Revenue Code (sec. 
     417(e)) restricts distributions before normal retirement age 
     without the consent of the participant and the participant's 
     spouse unless the value of the distribution does not exceed a 
     dollar limit ($5,000 under sec. 411(a)(11)(A)). For this 
     purpose, under Treasury regulations, a specific interest rate 
     and mortality table are prescribed for purposes of 
     determining whether the distribution exceeds the dollar limit 
     and prohibits a lump sum distribution of an amount less than 
     the amount determined under the applicable interest rate and 
     mortality table even if the distribution exceeds the dollar 
     limit.


                               House Bill

       The provision adds to the Internal Revenue Code a 
     requirement that the plan administrator of a defined benefit 
     pension plan or a money purchase pension plan with more than 
     100 participants furnish a written notice concerning a plan 
     amendment that provides for a significant reduction in the 
     rate of future benefit accrual. The plan administrator is 
     required to provide in this notice, in a manner calculated to 
     be understood by the average plan participant, sufficient 
     information (as defined in Treasury regulations) to allow 
     participants to understand the effect of the amendment.
       The notice requirement does not apply to governmental plans 
     or church plans with respect to which an election to have the 
     qualified plan participation, vesting, and funding rules 
     apply has not been made (sec. 410(d)).
       The plan administrator is required to provide this notice 
     to each affected participant, each affected alternate payee, 
     and each employee organization representing affected 
     participants. For purposes of the provision, an affected 
     participant or alternate payee is a participant or alternate 
     payee to whom the significant reduction in the rate of future 
     benefit accrual is reasonably expected to apply.
       Except to the extent provided by Treasury regulations, the 
     plan administrator is required to provide the notice within a 
     reasonable time before the effective date of the plan 
     amendment.
       The provision imposes on a plan administrator that fails to 
     comply with the notice requirement an excise tax equal to 
     $100 per day per omitted participant and alternate payee. For 
     failures due to reasonable cause and not to willful neglect, 
     the total excise tax imposed during a taxable year of the 
     employer will not exceed $500,000. Furthermore, in the case 
     of a failure due to reasonable cause and not to willful 
     neglect, the Secretary of the Treasury is authorized to waive 
     the excise tax to the extent that the payment of the tax 
     would be excessive relative to the failure involved.
       It is intended that the Secretary will issue the necessary 
     regulations with respect to disclosure within 90 days of 
     enactment. It is also intended that such guidance may be 
     relatively detailed because of the need to provide for 
     alternative disclosures rather than a single disclosure 
     methodology that may not fit all situations, and the need to 
     consider the complex actuarial calculations and assumptions 
     involved in providing necessary disclosures.
       In addition, the provision directs the Secretary of the 
     Treasury to prepare a report on

[[Page H10983]]

     the effects of conversions of traditional defined benefit 
     plans to cash balance or hybrid formula plans. Such study is 
     to examine the effect of such conversions on longer service 
     participants, including the incidence and effects of ``wear 
     away'' provisions under which participants earn no additional 
     benefits for a period of time after the conversion. The 
     Secretary is directed to submit such report, together with 
     recommendations thereon, to the Committee on Ways and Means 
     of the House of Representatives and the Committee on Finance 
     of the Senate as soon as practicable, but not later than 60 
     days after the date of enactment.
       Effective date.--The provision is effective for plan 
     amendments taking effect on or after the date of enactment. 
     The period for providing any notice required under the 
     provision will not end before the last day of the 3-month 
     period following the date of enactment. Prior to the issuance 
     of Treasury regulations, a plan will be treated as meeting 
     the requirements of the provision if the plan makes a good 
     faith effort to comply with such requirements.


                            Senate Amendment

       The provision adds to the Internal Revenue Code a 
     requirement that the plan administrator of a pension plan 
     furnish a written notice concerning a plan amendment that 
     provides for a significant reduction in the rate of future 
     benefit accrual, including any elimination or reduction of an 
     early retirement benefit or retirement-type 
     subsidy.50 The notice is required to set forth: 
     (1) a summary of the amendment and the effective date of the 
     amendment; (2) a statement that the amendment is expected to 
     significantly reduce the rate of future benefit accrual; (3) 
     a description of the classes of employees reasonably expected 
     to be affected by the reduction in the rate of future benefit 
     accrual; (4) examples illustrating the plan changes for these 
     classes of employees; (5) in the event of an amendment that 
     results in a conversion of a traditional defined benefit plan 
     to a cash balance plan (described below), a notice that the 
     plan administrator will provide, generally no later than 15 
     days prior to the effective date of the amendment, a 
     ``benefit estimation tool kit'' (described below) that will 
     enable affected participants who have completed at least 1 
     year of participation to personalize the illustrative 
     examples; and (6) notice of each affected participant's right 
     to request, and of the procedures for requesting, an annual 
     benefit statement as provided under present law. The plan 
     administrator is required to provide the notice not less than 
     45 days before the effective date of the plan amendment.
---------------------------------------------------------------------------
     \50\ The provision also modifies the present-law notice 
     requirement contained in section 204(h) of Title I of ERISA 
     to provide that an applicable pension plan may not be amended 
     to provide for a significant reduction in the rate of future 
     benefit accrual in the event of an egregious failure by the 
     plan administrator to comply with a notice requirement 
     similar to the notice requirement that the provision adds to 
     the Internal Revenue Code. In addition, the provision expands 
     the current ERISA notice requirement regarding significant 
     reductions in normal retirement benefit accrual rates to 
     early retirement benefits and retirement-type subsidies.
---------------------------------------------------------------------------
       The notice requirement does not apply to plans to which 
     ERISA sec. 204(h) does not apply, including governmental 
     plans or church plans with respect to which an election to 
     have the qualified plan participation, vesting, and funding 
     rules apply has not been made (sec. 410(d)).
       The plan administrator is required to provide this 
     generalized notice to each affected participant and each 
     affected alternate payee. For purposes of the provision, an 
     affected participant or alternate payee is a participant or 
     alternate payee to whom the reduction in the rate of future 
     benefit accrual, including any elimination or significant 
     reduction in early retirement benefit or retirement-type 
     subsidy, is reasonably expected to apply.
       As noted above, the provision requires the plan 
     administrator to provide a benefit estimation tool kit, no 
     later than 15 days prior to the amendment effective date, to 
     a participant for whom the amendment may reasonably be 
     expected to produce a significant reduction in the rate of 
     future benefit accrual if the amendment has the effect of 
     converting a traditional defined benefit plan to a cash 
     balance plan. The plan administrator is not required to 
     provide this benefit estimation tool kit to any participant 
     who has less than 1 year of participation in the plan. For 
     purposes of the provision, a ``cash balance plan'' means a 
     defined benefit plan under which the accrued benefit is 
     determined as an amount other than an annual benefit 
     commencing at normal retirement age, and any defined benefit 
     plan, or portion of such a plan, that has an effect similar 
     to a defined benefit plan under which the accrued benefit is 
     determined as an amount other than an annual benefit 
     commencing at normal retirement age (as determined under 
     Treasury regulations). If the benefits of 2 or more defined 
     benefit plans established or maintained by an employer are 
     coordinated in such a manner as to have the effect of a 
     conversion to a cash balance plan, the provision treats the 
     sponsor of the plan or plans providing for such coordination 
     as having adopted such a conversion as of the date such 
     coordination begins. If a plan sponsor represents in 
     communications to participants and beneficiaries that a plan 
     amendment has an effect equivalent to a cash balance 
     conversion, such amendment is (to the extent provided in 
     Treasury regulations) treated as a cash balance conversion. 
     In addition, the provision provides for the Secretary of the 
     Treasury to issue regulations to prevent avoidance of the 
     requirements of the provision through the use of 2 or more 
     plan amendments rather than a single amendment.
       The benefit estimation tool kit is designed to enable 
     participants to estimate benefits under the old and new plan 
     provisions. The provision permits the tool kit to be in the 
     form of software (for use at home, at a workplace kiosk, or 
     on a company intranet), worksheets, or calculation 
     instructions, or other formats to be determined by the 
     Secretary of the Treasury. The tool kit is required to 
     include any necessary actuarial assumptions and formulas and 
     to permit the participant to estimate both a single life 
     annuity at appropriate ages and, when available, a lump sum 
     distribution. The tool kit is required to disclose the 
     interest rate used to compute a lump sum distribution and 
     whether the value of early retirement benefits is included in 
     the lump sum distribution.
       The provision requires the benefit estimation tool kit to 
     accommodate employee-provided variables with respect to age, 
     years of service, retirement age, covered compensation, and 
     interest rate (when variable rates apply). The tool kit is 
     required to permit employees to recalculate estimated 
     benefits by changing the values of these variables. The 
     provision does not require the tool kit to accommodate 
     employee variables with respect to qualified domestic 
     relations orders, factors that result in unusual patterns of 
     credited service (such as extended time away from the job), 
     special benefit formulas for unusual situations, offsets from 
     other plans, and forms of annuity distributions.
       In the case of a cash balance conversion that occurs in 
     connection with a business disposition or acquisition 
     transaction and within 1 year following the date of the 
     transaction, the provision requires the plan administrator to 
     provide the benefit estimation tool kit prior to the end of 
     the 2-year period following the date of the transaction to 
     the affected participants who become participants as a result 
     of the transaction.
       The provision permits a plan administrator to provide any 
     notice required under the provision to a person designated in 
     writing by the individual to whom it would otherwise be 
     provided. In addition, the provision authorizes the Secretary 
     of the Treasury to allow any notice required under the 
     provision to be provided by using new technologies.
       The provision imposes on a plan administrator that fails to 
     comply with the notice requirement an excise tax equal to 
     $100 per day per omitted participant and alternate payee. No 
     excise tax shall be imposed during any period during which 
     any person subject to liability for the tax did not know that 
     the failure existed and exercised reasonable diligence to 
     meet the notice requirement. Also, no excise tax shall be 
     imposed on any failure if any person subject to liability for 
     the tax exercised reasonable diligence to meet the notice 
     requirement and such person provides the required notice 
     during the 30-day period beginning on the first date such 
     person knew, or exercising reasonable diligence would have 
     known, that the failure existed. If the person subject to 
     liability for the excise tax exercised reasonable diligence 
     to meet the notice requirement, the total excise tax imposed 
     during a taxable year of the employer will not exceed 
     $500,000. Furthermore, in the case of a failure due to 
     reasonable cause and not to willful neglect, the Secretary of 
     the Treasury is authorized to waive the excise tax to the 
     extent that the payment of the tax is excessive or otherwise 
     inequitable relative to the failure involved.
       The provision adds to the Internal Revenue Code and ERISA 
     requirements designed to prevent the use of ``wear away'' 
     provisions under which participants earn no additional 
     benefits for a period of time after a conversion of a 
     traditional defined benefit plan to a cash balance plan. 
     These requirements are in addition to the other provisions of 
     the Internal Revenue Code that prohibit the reduction of a 
     participant's accrued benefit by plan amendment (sec. 
     411(d)(6)). In the event of a conversion of a traditional 
     defined benefit plan to a cash balance plan, the provision 
     applies a minimum benefit requirement. This minimum benefit 
     requirement requires a participant's accrued benefit under 
     the cash balance plan to equal not less than (1) the benefit 
     accrued for years of service prior to the conversion under 
     the traditional defined benefit plan formula (not taking into 
     account any early retirement benefit or retirement-type 
     subsidy), plus (2) any benefit accrued for years of service 
     after the conversion under the cash balance plan benefit 
     formula. If the amendment provides that the accrued benefit 
     initially credited to a participant's accumulation account 
     (or its equivalent) on the effective date of the amendment 
     satisfies the present value rules described below, the plan 
     will not be treated as failing to provide to the participant 
     an accrued benefit that includes such pre-conversion accrued 
     benefit at any time after the effective date of the amendment 
     merely because of a fluctuation in interest rates. The 
     provision does not apply the minimum benefit requirement 
     designed to prevent ``wear away'' to a cash balance 
     conversion amendment to the extent that the amendment permits 
     a participant to continue to accrue benefits in the same 
     manner as under the terms of the plan in effect prior to the 
     amendment (for example, by providing for the participant to 
     receive the greater of the old or new formulas).

[[Page H10984]]

       Under the provision, a plan is treated as satisfying the 
     minimum benefit requirement designed to prevent ``wear away'' 
     if a plan amendment provides that the present value of a 
     participant's benefit accrued under a traditional defined 
     benefit plan formula prior to a cash balance conversion is 
     not less than the greater of (1) the present value determined 
     using the applicable mortality table and the applicable 
     interest rate in effect under the plan on the effective date 
     of the cash balance conversion, or (2) the amount of the lump 
     sum distribution that would be payable as of such effective 
     date if the participant were eligible to receive a 
     distribution under the terms of the plan as in effect 
     immediately before such effective date, but not taking into 
     account any early retirement benefit or retirement-type 
     subsidy.
       Except as provided in regulations, the provision generally 
     requires the present value of the accrued benefit of any 
     participant under a cash balance plan to be equal to the 
     balance in the participant's accumulation account (or its 
     equivalent) as of the time of the present value 
     determination. This requirement will not apply to any portion 
     of the participant's benefit accrued prior to a cash balance 
     conversion except to the extent the plan provides that the 
     amount initially credited to a participant's accumulation 
     account (or its equivalent) on the effective date of the 
     conversion is not less than the benefit accrued for years of 
     service prior to the conversion under the traditional defined 
     benefit formula (not taking into account any early retirement 
     benefit or retirement-type subsidy). This provision is solely 
     intended to permit plan sponsors to provide interest credits 
     in an amount greater than the amount currently permitted 
     under the Internal Revenue Code. Regulations may condition 
     satisfaction of this requirement on the plan crediting 
     interest at rates not in excess of a maximum and not less 
     than a minimum specified in the regulations.
       Failure to comply with the requirements of the provision 
     designed to prevent ``wear away'' results in the 
     disqualification of the plan.
       The provision directs the Secretary of the Treasury to 
     define in regulations, within 12 months after the date of 
     enactment, the terms ``early retirement benefit'' and 
     ``retirement-type subsidy.'' In addition, with respect to a 
     participant who is eligible to accrue benefits under the 
     terms of a defined benefit plan as in effect either before or 
     after an amendment that results in a conversion to a cash 
     balance plan, the provision directs the Secretary of the 
     Treasury to prescribe regulations under which (1) the plan 
     will be treated as meeting the requirements of sec. 
     411(b)(1)(A), (B), or (C) if such requirements are met 
     separately with respect to each of the plan's methods of 
     accruing benefits, and (2) the plan will not be treated as 
     failing to meet the requirements of sec. 401(a)(4) merely 
     because only participants as of the effective date of the 
     amendment are so eligible, if the plan met the requirements 
     of sec. 401(a)(4) under the terms of the plan as in effect 
     before the amendment (subject to the terms and conditions 
     provided by the regulations).
       Under the provision, no inference is intended with respect 
     to the proper treatment of cash balance plans or conversions 
     to cash balance plans under the laws in effect prior to the 
     effective date of the provision or under laws not affected by 
     the provision. In addition, the provision is not intended to 
     result in the treatment of a cash balance plan as a defined 
     contribution plan, or to affect the rules relating to 
     involuntary cash outs (sec. 411(a)(11)) 51 or 
     survivor annuity requirements (sec. 417).
---------------------------------------------------------------------------
     \51\ Another provision provides that rollover amounts are not 
     taken into account for purposes of the cash-out rules.
---------------------------------------------------------------------------
       Effective date.--The provision is effective for plan 
     amendments taking effect on or after the date of enactment, 
     with a delayed effective date for plans maintained pursuant 
     to a collective bargaining agreement. The period for 
     providing any notice required under the provision will not 
     end before the last day of the 3-month period following the 
     date of enactment. The notice requirements under the 
     provision do not apply to any plan amendment taking effect on 
     or after the date or enactment if, before September 5, 2000, 
     notice is provided to participants and beneficiaries 
     adversely affected by the plan amendment (or their 
     representatives) that is reasonably expected to notify them 
     of the nature and effective date of the plan amendment.


                          conference agreement

       The conference agreement follows the House bill, with the 
     following modifications.52 The conference 
     agreement also requires a notice with respect to the 
     elimination or reduction of an early retirement benefit or 
     retirement-type subsidy. In addition, the conference 
     agreement authorizes the Secretary of the Treasury to provide 
     a simplified notice requirement or an exemption from the 
     notice requirement for plans with less than 100 participants 
     and to allow any notice required under the conference 
     agreement to be provided by using new technologies. The 
     conference agreement also authorizes the Secretary to provide 
     a simplified notice requirement or an exemption from the 
     notice requirement if participants are given the option to 
     choose between benefits under the new plan formula and the 
     old plan formula. In such cases, the conferees understand 
     that the fiduciary rules applicable to pension plans may 
     require appropriate disclosure to participants, even if no 
     disclosure is required under the provision. With respect to 
     the amount of the excise tax for failure to comply with the 
     notice requirement, the conference agreement provides that no 
     excise tax shall be imposed during any period during which 
     any person subject to liability for the tax did not know that 
     the failure existed and exercised reasonable diligence to 
     meet the notice requirement. The conference agreement also 
     provides that no excise tax shall be imposed on any failure 
     if any person subject to liability for the tax exercised 
     reasonable diligence to meet the notice requirement and such 
     person provides the required notice during the 30-day period 
     beginning on the first date such person knew, or exercising 
     reasonable diligence would have known, that the failure 
     existed. Furthermore, the conference agreement provides that 
     if the person subject to liability for the excise tax 
     exercised reasonable diligence to meet the notice 
     requirement, the total excise tax imposed during a taxable 
     year will not exceed $500,000.
---------------------------------------------------------------------------
     \52\ The conference agreement also modifies the present-law 
     notice requirement contained in section 204(h) of Title I of 
     ERISA to provide that an applicable pension plan may not be 
     amended to provide for a significant reduction in the rate of 
     future benefit accrual in the event of a failure by the plan 
     administrator to comply with a notice requirement similar to 
     the notice requirement that the conference agreement adds to 
     the Internal Revenue Code. In addition, the conference 
     agreement expands the current ERISA notice requirement 
     regarding significant reductions in normal retirement benefit 
     accrual rates to reductions in early retirement benefits and 
     retirement-type subsidies.
---------------------------------------------------------------------------
       Effective date.--The conference agreement is effective for 
     plan amendments taking effect on or after the date of 
     enactment. The period for providing any notice required under 
     the conference agreement will not end before the last day of 
     the 3-month period following the date of enactment. Prior to 
     the issuance of Treasury regulations, a plan will be treated 
     as meeting the requirements of the conference agreement if 
     the plan makes a good faith effort to comply with such 
     requirements. The notice requirement under the conference 
     agreement does not apply to any plan amendment taking effect 
     on or after the date or enactment if, before October 24, 
     2000, notice is provided to participants and beneficiaries 
     adversely affected by the plan amendment (or their 
     representatives) that is reasonably expected to notify them 
     of the nature and effective date of the plan amendment.

 D. Modifications to Section 415 Limits for Multiemployer Plans (sec. 
 505 of the House bill, sec. 504 of the Senate amendment, and sec. 415 
                              of the Code)


                              present law

       Under present law, limits apply to contributions and 
     benefits under qualified plans (sec. 415). The limits on 
     contributions and benefits under qualified plans are based on 
     the type of plan.
       Under a defined benefit plan, the maximum annual benefit 
     payable at retirement is generally the lesser of (1) 100 
     percent of average compensation for the highest three years, 
     or (2) $135,000 (for 2000). The dollar limit is adjusted for 
     cost-of-living increases in $5,000 increments. The dollar 
     limit is reduced in the case of retirement before the social 
     security retirement age and increased in the case of 
     retirement after the social security retirement age.
       A special rule applies to governmental defined benefit 
     plans. In the case of such plans, the defined benefit dollar 
     limit is reduced in the case of retirement before age 62 and 
     increased in the case of retirement after age 65. In 
     addition, there is a floor on early retirement benefits. 
     Pursuant to this floor, the minimum benefit payable at age 55 
     is $75,000.
       In the case of a defined contribution plan, the limit on 
     annual is additions if the lesser of (1) 25 percent of 
     compensation 53 or (2) $30,000 (for 2000).
---------------------------------------------------------------------------
     \53\ Another provision of the bill increases this limit to 
     100 percent of compensation.
---------------------------------------------------------------------------
       In applying these limits, plans of the same employer are 
     aggregated. That is, all defined benefit plans of the same 
     employer are treated as a single plan, and all defined 
     contribution plans of the same employer are treated as a 
     single plan. Under Treasury regulations, multiemployer plans 
     are not aggregated with other multiemployer plans. However, 
     if an employer maintains both a plan that is not a 
     multiemployer plan and a mulitemployer plan, the plan that is 
     not a multiemployer plan is aggregated with the multiemployer 
     plan to the extent that benefits provided under the 
     multiemployer plan are provided with respect to a common 
     participant.54
---------------------------------------------------------------------------
     \54\ Treas. reg. sec. 1.415-8(e).
---------------------------------------------------------------------------


                               house bill

       Under the House bill, the 100 percent of compensation 
     defined benefit plan limit does not apply to multiemployer 
     plans. In addition, multiemployer plans are not aggregated 
     with any other plan maintained by the same employer, except 
     for purposes of applying the dollar limitation on defined 
     plans and the limits on annual additions to a plan that is 
     not a multiemployer plan.
       Effective date.--The provision is effective for years 
     beginning after December 31, 2000.


                            senate amendment

       The Senate amendment is the same as the House bill with 
     respect to waiver of the 100 percent of compensation limit.

[[Page H10985]]

       With respect to aggregation of multiemployer plans with 
     other plans, the Senate amendment provides that multiemployer 
     plans are not aggregated with single-employer defined benefit 
     plans maintained by an employer contributing to the 
     multiemployer plan for purposes of applying the 100 percent 
     of compensation limit to such single-employer plan.
       Effective date.--Same as the House bill.


                          conference agreement

       The conference agreement follows the House bill and the 
     Senate amendment with respect to the 100-percent of 
     compensation limitation. Thus, the 100-percent of 
     compensation defined benefit plan limit does not apply to 
     multiemployer plans.
       The conference agreement follows the Senate amendment with 
     respect to the aggregation of multiemployer plans with other 
     plans, with modifications.

 E. Investment of Employee Contributions in 401(k) Plans (sec. 505 of 
  the Senate amendment and sec. 1524(b) of the Taxpayer Relief Act of 
                                 1997)


                              present law

       The Employee Retirement Income Security Act of 1974, as 
     amended (``ERISA'') prohibits certain employee benefit plans 
     from acquiring securities or real property of the employer 
     who sponsors the plan if, after the acquisition, the fair 
     market value of such securities and property exceeds 10 
     percent of the fair market value of plan assets. The 10-
     percent limitation does not apply to any ``eligible 
     individual account plans'' that specifically authorize such 
     investments. Generally, eligible individual account plans are 
     defined contribution plans, including plans containing a cash 
     or deferred arrangement (``401(k) plans'').
       The term ``eligible individual account plan'' does not 
     include the portion of a plan that consists of elective 
     deferrals (and earnings on the elective deferrals) made under 
     section 401(k) if elective deferrals equal to more than 1 
     percent of any employee's eligible compensation are required 
     to be invested in employer securities and employer real 
     property. Eligible compensation is compensation that is 
     eligible to be deferred under the plan. The portion of the 
     plan that consists of elective deferrals (and earnings 
     thereon) is still treated as an individual account plan, 
     and the 10-percent limitation does not apply, as long as 
     elective deferrals (and earnings thereon) are not required 
     to be invested in employer securities or employer real 
     property.
       The rule excluding elective deferrals (and earnings 
     thereon) from the definition of individual account plan does 
     not apply if individual account plans are a small part of the 
     employer's retirement plans. In particular, that rule does 
     not apply to an individual account plan for a plan year if 
     the value of the assets of all individual account plans 
     maintained by the employer do not exceed 10 percent of the 
     value of the assets of all pension plans maintained by the 
     employer (determined as of the last day of the preceding plan 
     year). Multiemployer plans are not taken into account in 
     determining whether the value of the assets of all individual 
     account plans maintained by the employer exceed 10 percent of 
     the value of the assets of all pension plans maintained by 
     the employer. The rule excluding elective deferrals (and 
     earnings thereon) from the definition of individual account 
     plan does not apply to an employee stock ownership plan as 
     defined in section 4975(e)(7) of the Internal Revenue Code.
       The rule excluding elective deferrals (and earnings 
     thereon) from the definition of individual account plan 
     applies to elective deferrals for plan years beginning after 
     December 31, 1998 (and earnings thereon). It does not apply 
     with respect to earnings on elective deferrals for plan years 
     beginning before January 1, 1999.


                               house bill

       No provision.


                            senate amendment

       The provision modifies the effective date of the rule 
     excluding certain elective deferrals (and earnings thereon) 
     from the definition of individual account plan by providing 
     that the rule does not apply to any elective deferral used to 
     acquire employer securities or employer real property 
     acquired before January 1, 1999.
       Effective date.--The provision is effective as if included 
     in the section of the Taxpayer Relief Act of 1997 that 
     contained the rule excluding certain elective deferrals (and 
     earnings thereon) from the definition of individual account 
     plan.


                          conference agreement

       The conference agreement follows the Senate amendment.

    F. Periodic Pension Benefit Statements (sec. 506 of the Senate 
                  amendment and sec. 105(a) of ERISA)


                              present law

       Title I of ERISA provides that a pension plan administrator 
     must furnish a benefit statement to any participant or 
     beneficiary who makes a written request for such a statement. 
     This statement must indicate, on the basis of the latest 
     available information, (1) the participant's or beneficiary's 
     total accrued benefit, and (2) the participant's or 
     beneficiary's vested accrued benefit or the earliest date on 
     which the accrued benefit will become vested. A participant 
     or beneficiary is not entitled to receive more than 1 benefit 
     statement during any 12-month period. The plan administrator 
     must furnish the benefit statement no later than 60 days 
     after receipt of the request or, if later, 120 days after the 
     close of the immediately preceding plan year.
       In addition, the plan administrator must furnish a benefit 
     statement to each participant whose employment terminates or 
     who has a 1-year break in service. For purposes of this 
     benefit statement requirement, a ``1-year break in service'' 
     is a calendar year, plan year, or other 12-month period 
     designated by the plan during which the participant does not 
     complete more than 500 hours of service for the employer. A 
     participant is not entitled to receive more than 1 benefit 
     statement with respect to consecutive breaks in service. The 
     plan administrator must provide a benefit statement required 
     upon termination of employment or a break in service no later 
     than 180 days after the end of the plan year in which the 
     termination of employment or break in service occurs.


                               house bill

       No provision.


                            senate amendment

       A plan administrator of a defined contribution plan 
     generally is required to furnish a benefit statement to each 
     participant at least once annually and to a beneficiary upon 
     written request.
       In addition to providing a benefit statement to a 
     participant or beneficiary upon written request, the plan 
     administrator of a defined benefit plan generally is required 
     either (1) to furnish a benefit statement at least once every 
     3 years to each participant who has a vested accrued benefit 
     and who is employed by the employer at the time the plan 
     administrator furnishes the benefit statements to 
     participants, or (2) to annually furnish written, electronic, 
     telephonic, or other appropriate notice to each participant 
     of the availability of and the manner in which the 
     participant may obtain the benefit statement.
       The plan administrator of a multiemployer plan or a 
     multiple employer plan is required to furnish a benefit 
     statement only upon written request of a participant or 
     beneficiary.55
---------------------------------------------------------------------------
     \55\ A multiple employer plan is a plan that is maintained by 
     2 or more unrelated employers but that is not maintained 
     pursuant to a collective-bargaining agreement (sec. 413(c)).
---------------------------------------------------------------------------
       The plan administrator is required to write the benefit 
     statement in a manner calculated to be understood by the 
     average plan participant and is permitted to furnish the 
     statement in written, electronic, telephonic, or other 
     appropriate form.
       Effective date.--The provision is effective for plan years 
     beginning after December 31, 2000.


                          conference agreement

       The conference agreement follows the Senate amendment, with 
     the following modifications. The conference agreement 
     authorizes the Secretary of Labor to provide that years in 
     which no employee or former employee benefits under a plan 
     need not be taken into account in determining the applicable 
     3-year period.
       Effective date.--The conference agreement is effective for 
     plan years beginning after December 31, 2001.

 G. Prohibited Allocations of Stock in an S Corporation ESOP (sec. 506 
of the House bill, sec. 507 of the Senate amendment, and secs. 409 and 
                           4979A of the Code)


                              present law

       The Small Business Job Protection Act of 1996 allowed 
     qualified retirement plan trusts described in section 401(a) 
     to own stock in an S corporation. That Act treated the plan's 
     share of the S corporation's income (and gain on the 
     disposition of the stock) as includible in full in the 
     trust's unrelated business taxable income (``UBTI'').
       The Tax Relief Act of 1997 repealed the provision treating 
     items of income or loss of an S corporation as UBTI in the 
     case of an employee stock ownership plan (``ESOP''). Thus, 
     the income of an S corporation allocable to an ESOP is not 
     subject to current taxation.
       Present law provides a deferral of income on the sales of 
     certain employer securities to an ESOP (sec. 1042). A 50-
     percent excise tax is imposed on certain prohibited 
     allocations of securities acquired by an ESOP in a 
     transaction to which section 1042 applies. In addition, such 
     allocations are currently includible in the gross income of 
     the individual receiving the prohibited allocation.


                               house bill

     In general
       Under the provision, if there is a nonallocation year with 
     respect to an ESOP maintained by an S corporation: (1) the 
     amount allocated in a prohibited allocation to an individual 
     who is a disqualified person is treated as distributed to 
     such individual (i.e., the value of the prohibited allocation 
     is includible in the gross income of the individual receiving 
     the prohibited allocation); (2) an excise tax is imposed on 
     the S corporation equal to 50 percent of the amount involved 
     in a prohibited allocation; and (3) an excise tax is imposed 
     on the S corporation with respect to any synthetic equity 
     owned by a disqualified person.56
---------------------------------------------------------------------------
     \56\ The plan is not disqualified merely because an excise 
     tax is imposed under the provision.
---------------------------------------------------------------------------
       It is intended that the provision will limit the 
     establishment of ESOPs by S corporations to those that 
     provide broad-based employee coverage and that benefit rank-
     and-

[[Page H10986]]

     file employees as well as highly compensated employees and 
     historical owners.
     Definition of nonallocation year
       A nonallocation year means any plan year of an ESOP holding 
     shares in an S corporation if, at any time during the plan 
     year, disqualified persons own at least 50 percent of the 
     number of outstanding shares of the S corporation.
       A person is a disqualified person if the person is either 
     (1) a member of a ``deemed 20-percent shareholder group'' or 
     (2) a ``deemed 10-percent shareholder.'' A person is a member 
     of a ``deemed 20-percent shareholder group'' if the aggregate 
     number of deemed-owned shares of the person and his or her 
     family members is at least 20 percent of the number of 
     deemed-owned shares of stock in the S 
     corporation.57 A person is a deemed 10-percent 
     shareholder if the person is not a member of a deemed 20-
     percent shareholder group and the number of the person's 
     deemed-owned shares is at least 10 percent of the number of 
     deemed-owned shares of stock of the corporation.
---------------------------------------------------------------------------
     \57\ A family member of a member of a ``deemed 20-percent 
     shareholder group'' with deemed owned shares also is treated 
     as a disqualified person.
---------------------------------------------------------------------------
       In general, ``deemed-owned shares'' means: (1) stock 
     allocated to the account of an individual under the ESOP, and 
     (2) an individual's share of unallocated stock held by the 
     ESOP. An individual's share of unallocated stock held by an 
     ESOP is determined in the same manner as the most recent 
     allocation of stock under the terms of the plan.
       For purposes of determining whether there is a 
     nonallocation year, ownership of stock generally is 
     attributed under the rules of section 318,58 
     except that: (1) the family attribution rules are modified to 
     include certain other family members, as described below, (2) 
     option attribution does not apply (but instead special rules 
     relating to synthetic equity described below apply), and (3) 
     ``deemed-owned shares'' held by the ESOP are treated as held 
     by the individual with respect to whom they are deemed owned.
---------------------------------------------------------------------------
     \58\ These attribution rules also apply to stock treated as 
     owned by reason of the ownership of synthetic equity.
---------------------------------------------------------------------------
       Under the provision, family members of an individual 
     include (1) the spouse 59 of the individual, (2) 
     an ancestor or lineal descendant of the individual or his or 
     her spouse, (3) a sibling of the individual (or the 
     individual's spouse) and any lineal descendant of the brother 
     or sister, and (4) the spouse of any person described in (2) 
     or (3).
---------------------------------------------------------------------------
     \59\ As under section 318, an individual's spouse is not 
     treated as a member of the individual's family if the spouses 
     are legally separated.
---------------------------------------------------------------------------
       The provision contains special rules applicable to 
     synthetic equity interests. Except to the extent provided in 
     regulations, the stock on which a synthetic equity interest 
     is based is treated as outstanding stock of the S corporation 
     and as deemed-owned shares of the person holding the 
     synthetic equity interest if such treatment would result in 
     the treatment of any person as a disqualified person or the 
     treatment of any year as a nonallocation year. Thus, for 
     example, disqualified persons for a year include those 
     individuals who are disqualified persons under the general 
     rule (i.e., treating only those shares held by the ESOP as 
     deemed-owned shares) and those individuals who are 
     disqualified individuals if synthetic equity interests are 
     treated as deemed-owned shares.
       ``Synthetic equity'' means any stock option, warrant, 
     restricted stock, deferred issuance stock right, or similar 
     interest that gives the holder the right to acquire or 
     receive stock of the S corporation in the future. Except to 
     the extent provided in regulations, synthetic equity also 
     includes a stock appreciation right, phantom stock unit, or 
     similar right to a future cash payment based on the value of 
     such stock or appreciation in such value.60
---------------------------------------------------------------------------
     \60\ The provisions relating to synthetic equity do not 
     modify the rules relating to S corporations, e.g., the 
     circumstances in which options or similar interests are 
     treated as creating a second class of stock.
---------------------------------------------------------------------------
       Ownership of synthetic equity is attributed in the same 
     manner as stock is attributed under the provision (as 
     described above). In addition, ownership of synthetic equity 
     is attributed under the rules of section 318(a)(2) and (3) in 
     the same manner as stock.
     Definition of prohibited allocation
       An ESOP of an S corporation is required to provide that no 
     portion of the assets of the plan attributable to (or 
     allocable in lieu of) S corporation stock may, during a 
     nonallocation year, accrue (or be allocated directly or 
     indirectly under any qualified plan of the S corporation) for 
     the benefit of a disqualified person. A ``prohibited 
     allocation'' refers to violations of this provision. A 
     prohibited allocation occurs, for example, if income on S 
     corporation stock held by an ESOP is allocated to the account 
     of an individual who is a disqualified person.
     Application of excise tax
       In the case of a prohibited allocation, the S corporation 
     is liable for an excise tax equal to 50 percent of the amount 
     of the allocation. For example, if S corporation stock is 
     allocated in a prohibited allocation, the excise tax is equal 
     to 50 percent of the fair market value of such stock.
       A special rule applies in the case of the first 
     nonallocation year, regardless of whether there is a 
     prohibited allocation. In that year, the excise tax also 
     applies to the fair market value of the deemed-owned shares 
     of any disqualified person held by the ESOP, even though 
     those shares are not allocated to the disqualified person in 
     that year.
       As mentioned above, the S corporation also is liable for an 
     excise tax with respect to any synthetic equity interest 
     owned by any disqualified person in a nonallocation year. The 
     excise tax is 50 percent of the value of the shares on which 
     synthetic equity is based.
     Treasury regulations
       The Treasury Department is given the authority to prescribe 
     such regulations as may be necessary to carry out the 
     purposes of the provision.
     Effective date
       The provision generally is effective with respect to plan 
     years beginning after December 31, 2001. In the case of an 
     ESOP established after July 11, 2000, or an ESOP established 
     on or before such date if the employer maintaining the plan 
     was not an S corporation on such date, the proposal is 
     effective with respect to plan years ending after July 11, 
     2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

  Subtitle F. Reducing Regulatory Burdens (secs. 451-464 of the bill)

  A. Modification of Timing of Plan Valuations (sec. 601 of the House 
   bill, sec. 601 of the Senate amendment, and sec. 412 of the Code)


                              Present Law

       Under present law, plan valuations are generally required 
     annually for plans subject to the minimum funding rules. 
     Under proposed Treasury regulations, except as provided by 
     the Commissioner, the valuation must be as of a date within 
     the plan year to which the valuation refers or within the 
     month prior to the beginning of that year.61
---------------------------------------------------------------------------
     \61\ Prop. reg. sec. 1.412(c)(9)-1(b)(1).
---------------------------------------------------------------------------


                               House Bill

       The provision incorporates into the statute the proposed 
     regulation regarding the date of valuations. The provision 
     also provides, as an exception to this general rule, that the 
     valuation date with respect to a plan year may be any date 
     within the immediately preceding plan year if, as of such 
     date, plan assets are not less than 125 percent of the plan's 
     current liability. Information determined as of such date is 
     required to be adjusted actuarially, in accordance with 
     Treasury regulations, to reflect significant differences in 
     plan participants. An election to use a prior plan year 
     valuation date, once made, may only be revoked with the 
     consent of the Secretary.
       Effective date.--The provision is effective for plan years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House 
     bill.62
---------------------------------------------------------------------------
     \62\ The Senate amendment also amends the corresponding 
     provisions of ERISA.
---------------------------------------------------------------------------


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.63
---------------------------------------------------------------------------
     \63\ The conference agreement also amends the corresponding 
     provisions of ERISA.
---------------------------------------------------------------------------

B. ESOP Dividends May Be Reinvested Without Loss of Dividend Deduction 
(sec. 602 of the House bill, sec. 602 of the Senate amendment, and sec. 
                            404 of the Code)


                              Present Law

       An employer is entitled to deduct certain dividends paid in 
     cash during the employer's taxable year with respect to stock 
     of the employer that is held by an employee stock ownership 
     plan (``ESOP''). The deduction is allowed with respect to 
     dividends that, in accordance with plan provisions, are (1) 
     paid in cash directly to the plan participants or their 
     beneficiaries, (2) paid to the plan and subsequently 
     distributed to the participants or beneficiaries in cash no 
     later than 90 days after the close of the plan year in which 
     the dividends are paid to the plan, or (3) used to make 
     payments on loans (including payments of interest as well as 
     principal) that were used to acquire the employer securities 
     (whether or not allocated to participants) with respect to 
     which the dividend is paid.
       The Secretary may disallow the deduction for any ESOP 
     dividend if he determines that the dividend constitutes, in 
     substance, an evasion of taxation (sec. 404(k)(5)).


                               House Bill

       In addition to the deductions permitted under present law 
     for dividends paid with respect to employer securities that 
     are held by an ESOP, an employer is entitled to deduct 
     dividends that, at the election of plan participants or their 
     beneficiaries, are (1) payable in cash directly to plan 
     participants or beneficiaries, (2) paid to the plan and 
     subsequently distributed to the participants or beneficiaries 
     in cash no later than 90 days after the close of the plan 
     year in which the dividends are paid to the plan, or (3) paid 
     to the plan and reinvested in qualifying employer securities.
       As under present law, the Secretary may disallow the 
     deduction for any ESOP dividend if he determines that the 
     dividend constitutes, in substance, an evasion of taxation 
     (sec. 404(k)(5)).
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.

[[Page H10987]]

                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment, with the following modification. The 
     conference agreement permits the Secretary of the Treasury to 
     disallow the deduction for any ESOP dividend in the case of 
     any dividend that constitutes the avoidance or evasion of 
     taxation. For example, it is intended that the Secretary will 
     disallow the deduction as an avoidance or evasion of taxation 
     in circumstances similar to those that would result in a 
     nonallocation year under the provision of the bill relating 
     to S corporation ESOPs. The dividends deductible under the 
     provision are treated the same as other plan earnings, i.e., 
     they are not subject to the limits on elective deferrals or 
     the special nondiscrimination rules applicable to section 
     401(k) plans, and are not treated as annual additions for 
     purposes of the section 415 limits on contributions.

   C. Repeal Transition Rule Relating to Certain Highly Compensated 
     Employees (sec. 603 of the House bill, sec. 603 of the Senate 
     amendment, and sec. 1114(c)(4) of the Tax Reform Act of 1986)


                              Present Law

       Under present law, for purposes of the rules relating to 
     qualified plans, a highly compensated employee is generally 
     defined as an employee 64 who (1) was a 5-percent 
     owner of the employer at any time during the year or the 
     preceding year or (2) either (a) had compensation for the 
     preceding year in excess of $85,000 (for 2000) or (b) at the 
     election of the employer, had compensation in excess of 
     $85,000 for the preceding year and was in the top 20 percent 
     of employees by compensation for such year.
---------------------------------------------------------------------------
     \64\ An employee includes a self-employed individual.
---------------------------------------------------------------------------
       Under a rule enacted in the Tax Reform Act of 1986, a 
     special definition of highly compensated employee applies for 
     purposes of the nondiscrimination rules relating to qualified 
     cash or deferred arrangements (``section 401(k) plans'') and 
     matching contributions. This special definition applies to an 
     employer incorporated on December 15, 1924, that meets 
     certain specific requirements.


                               House Bill

       The provision repeals the special definition of highly 
     compensated employee under the Tax Reform Act of 1986. Thus, 
     the present-law definition applies.
       Effective date.--The provision is effective for plan years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

  D. Employees of Tax-Exempt Entities (sec. 604 of the House bill and 
                   sec. 604 of the Senate amendment)


                              Present Law

       The Tax Reform Act of 1986 provided that nongovernmental 
     tax-exempt employers were not permitted to maintain a 
     qualified cash or deferred arrangement (``section 401(k) 
     plan''). This prohibition was repealed, effective for years 
     beginning after December 31, 1996, by the Small Business Job 
     Protection Act of 1996.
       Treasury regulations provide that, in applying the 
     nondiscrimination rules to a section 401(k) plan (or a 
     section 401(m) plan that is provided under the same general 
     arrangement as the section 401(k) plan), the employer may 
     treat as excludable those employees of a tax-exempt entity 
     who could not participate in the arrangement due to the 
     prohibition on maintenance of a section 401(k) plan by such 
     entities. Such employees may be disregarded only if more than 
     95 percent of the employees who could participate in the 
     section 401(k) plan benefit under the plan for the plan 
     year.65
---------------------------------------------------------------------------
     \65\ Treas. Reg. sec. 1.410(b)-6(g).
---------------------------------------------------------------------------
       Tax-exempt charitable organizations may maintain a tax-
     sheltered annuity (a ``section 403(b) annuity'') that allows 
     employees to make salary reduction contributions.


                               House Bill

       The Treasury Department is directed to revise its 
     regulations under section 410(b) to provide that employees of 
     a tax-exempt charitable organization who are eligible to make 
     salary reduction contributions under a section 403(b) annuity 
     may be treated as excludable employees for purposes of 
     testing a section 401(k) plan, or a section 401(m) plan that 
     is provided under the same general arrangement as the section 
     401(k) plan of the employer, if (1) no employee of such tax-
     exempt entity is eligible to participate in the section 
     401(k) or 401(m) plan and (2) at least 95 percent of the 
     employees who are not employees of the charitable employer 
     are eligible to participate in such section 401(k) plan or 
     section 401(m) plan.
       The revised regulations are to be effective for years 
     beginning after December 31, 1996.
       Effective date.--The provision is effective on the date of 
     enactment.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

 E. Treatment of Employer-Provided Retirement Advice (sec. 605 of the 
House bill, sec. 605 of the Senate amendment, and sec. 132 of the Code)


                              Present Law

       Under present law, certain employer-provided fringe 
     benefits are excludable from gross income (sec. 132) and 
     wages for employment tax purposes. These excludable fringe 
     benefits include working condition fringe benefits and de 
     minimis fringes. In general, a working condition fringe 
     benefit is any property or services provided by an employer 
     to an employee to the extent that, if the employee paid for 
     such property or services, such payment would be allowable as 
     a deduction as a business expense. A de minimis fringe 
     benefit is any property or services provided by the employer 
     the value of which, after taking into account the frequency 
     with which similar fringes are provided, is so small as to 
     make accounting for it unreasonable or administratively 
     impracticable.
       In addition, if certain requirements are satisfied, up to 
     $5,250 annually of employer-provided educational assistance 
     is excludable from gross income (sec. 127) and wages. This 
     exclusion expires with respect to courses beginning after 
     December 31, 2001.66 Education not excludable 
     under section 127 may be excludable as a working condition 
     fringe.
---------------------------------------------------------------------------
     \66\ The exclusion does not apply with respect to graduate-
     level courses.
---------------------------------------------------------------------------
       There is no specific exclusion under present law for 
     employer-provided retirement planning services. However, such 
     services may be excludable as employer-provided educational 
     assistance or a fringe benefit.


                               House Bill

       Qualified retirement planning services provided to an 
     employee and his or her spouse by an employer maintaining a 
     qualified plan are excludable from income and wages. 
     Qualified retirement planning services are advice and 
     information regarding retirement planning. The exclusion is 
     not limited to information regarding the qualified plan, and, 
     thus, for example, applies to advice and information 
     regarding retirement income planning for an individual and 
     his or her spouse and how the employer's plan fits into the 
     individual's overall retirement income plan. On the other 
     hand, the exclusion does not apply to services that may be 
     related to retirement planning, such as tax preparation, 
     accounting, legal, or brokerage services.
       The exclusion does not apply with respect to highly 
     compensated employees unless the services are available on 
     substantially the same terms to each member of the group of 
     employees normally provided education and information 
     regarding the employer's qualified plan.
       Effective date.--The provision is effective with respect to 
     years beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment. The conferees intend that the provision 
     will clarify the treatment of retirement advice provided in a 
     nondiscriminatory manner. It is intended that the Secretary, 
     in determining the application of the exclusion to highly 
     compensated employees, may permit employers to take into 
     consideration employee circumstances other than compensation 
     and position in providing advice to classifications of 
     employees. Thus, for example, the Secretary may permit 
     employers to limit certain advice to individuals nearing 
     retirement age under the plan.

F. Reporting Simplification (sec. 606 of the House bill and sec. 606 of 
                         the Senate Amendment)


                              Present Law

       A plan administrator of a pension, annuity, stock bonus, 
     profit-sharing or other funded plan of deferred compensation 
     generally must file with the Secretary of the Treasury an 
     annual return for each plan year containing certain 
     information with respect to the qualification, financial 
     condition, and operation of the plan. Title I of ERISA also 
     may require the plan administrator to file annual reports 
     concerning the plan with the Department of Labor and the 
     Pension Benefit Guaranty Corporation (``PBGC''). The plan 
     administrator must use the Form 5500 series as the format for 
     the required annual return.67 The Form 5500 series 
     annual return/report, which consists of a primary form and 
     various schedules, includes the information required to be 
     filed with all three agencies. The plan administrator 
     satisfies the reporting requirement with respect to each 
     agency by filing the Form 5500 series annual return/report 
     with the Department of Labor, which forwards the form to the 
     Internal Revenue Service and the PBGC.
---------------------------------------------------------------------------
     \67\ Treas. Reg. sec. 301.6058-1(a).
---------------------------------------------------------------------------
       The Form 5500 series consists of 3 different forms: Form 
     5500, Form 5500-C/R, and Form 5500-EZ. Form 5500 is the most 
     comprehensive of the forms and requires the most detailed 
     financial information. Form 5500-C/R requires less 
     information than Form 5500, and Form 5500-EZ, which consists 
     of only 1 page, is the simplest of the forms.
       The size of the plan determines which form a plan 
     administrator must file. If the plan has more than 100 
     participants at the beginning of the plan year, the plan 
     administrator

[[Page H10988]]

     generally must file Form 5500. If the plan has fewer than 100 
     participants at the beginning of the plan year, the plan 
     administrator generally may file Form 5500-C/R. A plan 
     administrator generally may file Form 5500-EZ if (1) the only 
     participants in the plan are the sole owner of a business 
     that maintains the plan (and such owner's spouse), or 
     partners in a partnership that maintains the plan (and such 
     partners' spouses), (2) the plan is not aggregated with 
     another plan in order to satisfy the minimum coverage 
     requirements of section 410(b), (3) the employer is not a 
     member of a related group of employers, and (4) the employer 
     does not receive the services of leased employees. If the 
     plan satisfies the eligibility requirements for Form 5500-EZ 
     and the total value of the plan assets as of the end of the 
     plan year and all prior plan years does not exceed $100,000, 
     the plan administrator is not required to file a return.


                               House Bill

       The Secretary of the Treasury is directed to provide for 
     the filing of a simplified annual return substantially 
     similar to the Form 5500-EZ by a plan that (1) covers less 
     than 25 employees on the first day of the plan year, (2) is 
     not aggregated with another plan in order to satisfy the 
     minimum coverage requirements of section 410(b), (3) is 
     maintained by an employer that is not a member of a related 
     group of employers, and (4) is maintained by an employer that 
     does not receive the services of leased employees.
       In addition, the Secretary is directed to modify the annual 
     return filing requirements with respect to plans that satisfy 
     the eligibility requirements for Form 5500-EZ to provide that 
     if the total value of the plan assets of such a plan as of 
     the end of the plan year and all prior plan years does not 
     exceed $250,000, the plan administrator is not required to 
     file a return.
       Effective date.--The provision is effective on January 1, 
     2001.


                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     that the Senate amendment does not include the provision 
     relating to annual returns for plans that cover less than 25 
     employees.


                          Conference Agreement

       The conference agreement follows the Senate bill, with the 
     following modification. The conference agreement directs the 
     Secretary of the Treasury to provide simplified reporting 
     requirements for plan years beginning after December 31, 
     2001, for certain plans with fewer than 25 employees.

G. Improvement to Employee Plans Compliance Resolution System (sec. 607 
        of the House bill and sec. 607 of the Senate amendment)


                              Present Law

       A retirement plan that is intended to be a tax-qualified 
     plan provides retirement benefits on a tax-favored basis if 
     the plan satisfies all of the requirements of section 401(a). 
     Similarly, an annuity that is intended to be a tax-sheltered 
     annuity provides retirement benefits on a tax-favored basis 
     if the program satisfies all of the requirements of section 
     403(b). Failure to satisfy all of the applicable requirements 
     of section 401(a) or section 403(b) may disqualify a plan or 
     annuity for the intended tax-favored treatment.
       The Internal Revenue Service (``IRS'') has established the 
     Employee Plans Compliance Resolution System (``EPCRS''), 
     which is a comprehensive system of correction programs for 
     sponsors of retirement plans and annuities that are intended, 
     but have failed, to satisfy the requirements of section 
     401(a) and section 403(b), as applicable.68 EPCRS 
     permits employers to correct compliance failures and continue 
     to provide their employees with retirement benefits on a tax-
     favored basis.
---------------------------------------------------------------------------
     \68\ Rev. Proc. 98-22, 1998-12 I.R.B. 11, as modified by Rev. 
     Proc. 99-13, 1999-5, I.R.B. 52.
---------------------------------------------------------------------------
       The IRS has designed EPCRS to (1) encourage operational and 
     formal compliance, (2) promote voluntary and timely 
     correction of compliance failures, (3) provide sanctions for 
     compliance failures identified on audit that are reasonable 
     in light of the nature, extent, and severity of the 
     violation, (4) provide consistent and uniform administration 
     of the correction programs, and (5) permit employers to rely 
     on the availability of EPCRS in taking corrective actions to 
     maintain the tax-favored status of their retirement plans and 
     annuities.
       The basic elements of the programs that comprise EPCRS are 
     self-correction, voluntary correction with IRS approval, and 
     correction on audit. The Administrative Policy Regarding 
     Self-Correction (``APRSC'') permits a plan sponsor that has 
     established compliance practices to correct certain 
     insignificant failures at any time (including during an 
     audit), and certain significant failures within a 2-year 
     period, without payment of any fee or sanction. The Voluntary 
     Compliance Resolution (``VCR'') program, the Walk-In Closing 
     Agreement Program (``Walk-In CAP''), and the Tax-Sheltered 
     Annuity Voluntary Correction (``TVC'') program permit an 
     employer, at any time before an audit, to pay a limited fee 
     and receive IRS approval of a correction. For a failure that 
     is discovered on audit and corrected, the Audit Closing 
     Agreement Program (``Audit CAP'') provides for a sanction 
     that bears a reasonable relationship to the nature, extent, 
     and severity of the failure and that takes into account the 
     extent to which correction occurred before audit.
       The IRS has expressed its intent that EPCRS will be updated 
     and improved periodically in light of experience and comments 
     from those who use it.


                               House Bill

       The Secretary of the Treasury is directed to continue to 
     update and improve EPCRS, giving special attention to (1) 
     increasing the awareness and knowledge of small employers 
     concerning the availability and use of EPCRS, (2) taking into 
     account special concerns and circumstances that small 
     employers face with respect to compliance and correction of 
     compliance failures, (3) extending the duration of the self-
     correction period under APRSC for significant compliance 
     failures, (4) expanding the availability to correct 
     insignificant compliance failures under APRSC during audit, 
     and (5) assuring that any tax, penalty, or sanction that is 
     imposed by reason of a compliance failure is not excessive 
     and bears a reasonable relationship to the nature, extent, 
     and severity of the failure.
       Effective date.--The provision is effective on the date of 
     enactment.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

 H. Repeal of the Multiple Use Test (sec. 608 of the House bill, sec. 
       608 of the Senate amendment, and sec. 401(m) of the Code)


                              Present Law

       Elective deferrals under a qualified cash or deferred 
     arrangement (``section 401(k) plan'') are subject to a 
     special annual nondiscrimination test (``ADP test''). The ADP 
     test compares the actual deferral percentages (``ADPs'') of 
     the highly compensated employee group and the nonhighly 
     compensated employee group. The ADP for each group generally 
     is the average of the deferral percentages separately 
     calculated for the employees in the group who are eligible to 
     make elective deferrals for all or a portion of the relevant 
     plan year. Each eligible employee's deferral percentage 
     generally is the employee's elective deferrals for the year 
     divided by the employee's compensation for the year.
       The plan generally satisfies the ADP test if the ADP of the 
     highly compensated employee group for the current plan year 
     is either (1) not more than 125 percent of the ADP of the 
     nonhighly compensated employee group for the prior plan year, 
     or (2) not more than 200 percent of the ADP of the nonhighly 
     compensated employee group for the prior plan year and not 
     more than 2 percentage points greater than the ADP of the 
     nonhighly compensated employee group for the prior plan year.
       Employer matching contributions and after-tax employee 
     contributions under a defined contribution plan also are 
     subject to a special annual nondiscrimination test (``ACP 
     test''). The ACP test compares the actual deferral 
     percentages (``ACPs'') of the highly compensated employee 
     group and the nonhighly compensated employee group. The ACP 
     for each group generally is the average of the contribution 
     percentages separately calculated for the employees in the 
     group who are eligible to make after-tax employee 
     contributions or who are eligible for an allocation of 
     matching contributions for all or a portion of the relevant 
     plan year. Each eligible employee's contribution percentage 
     generally is the employee's aggregate after-tax employee 
     contributions and matching contributions for the year divided 
     by the employee's compensation for the year.
       The plan generally satisfies the ACP test if the ACP of the 
     highly compensated employee group for the current plan year 
     is either (1) not more than 125 percent of the ACP of the 
     nonhighly compensated employee group for the prior plan year, 
     or (2) not more than 200 percent of the ACP of the nonhighly 
     compensated employee group for the prior plan year and not 
     more than 2 percentage points greater than the ACP of the 
     nonhighly compensated employee group for the prior plan year.
       For any year in which (1) at least one highly compensated 
     employee is eligible to participate in an employer's plan or 
     plans that are subject to both the ADP test and the ACP test, 
     (2) the plan subject to the ADP test satisfies the ADP test 
     but the ADP of the highly compensated employee group exceeds 
     125 percent of the ADP of the nonhighly compensated employee 
     group, and (3) the plan subject to the ACP test satisfies the 
     ACP test but the ACP of the highly compensated employee group 
     exceeds 125 percent of the ACP of the nonhighly compensated 
     employee group, an additional special nondiscrimination test 
     (``multiple use test'') applies to the elective deferrals, 
     employer matching contributions, and after-tax employee 
     contributions. The plan or plans generally satisfy the 
     multiple use test if the sum of the ADP and the ACP of the 
     highly compensated employee group does not exceed the greater 
     of (1) the sum of (A) 1.25 times the greater of the ADP or 
     the ACP of the nonhighly compensated employee group, and (B) 
     2 percentage points plus (but not more than 2 times) the 
     lesser of the ADP or the ACP of the nonhighly compensated 
     employee group, or (2) the sum of (A) 1.25 times the lesser 
     of the ADP or the ACP of the nonhighly compensated employee 
     group, and (B) 2 percentage points plus (but not more than 2 
     times) the greater of the ADP or the ACP of the nonhighly 
     compensated employee group.

[[Page H10989]]

                               House Bill

       The provision repeals the multiple use test.
       Effective date.--The provision is effective for years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

  I. Flexibility in Nondiscrimination, Coverage, and Line of Business 
Rules (sec. 609 of the House bill, sec. 609 of the Senate amendment and 
            secs. 401(a)(4), 410(b), and 414(r) of the Code)


                              Present Law

       A plan is not a qualified retirement plan if the 
     contributions or benefits provided under the plan 
     discriminate in favor of highly compensated employees (sec. 
     401(a)(4)). The applicable Treasury regulations set forth the 
     exclusive rules for determining whether a plan satisfies the 
     nondiscrimination requirement. These regulations state that 
     the form of the plan and the effect of the plan in operation 
     determine whether the plan is nondiscriminatory and that 
     intent is irrelevant.
       Similarly, a plan is not a qualified retirement plan if the 
     plan does not benefit a minimum number of employees (sec. 
     410(b)). A plan satisfies this minimum coverage requirement 
     if and only if it satisfies one of the tests specified in the 
     applicable Treasury regulations. If an employer is treated as 
     operating separate lines of business, the employer may apply 
     the minimum coverage requirements to a plan separately with 
     respect to the employees in each separate line of business 
     (sec. 414(r)). Under a so-called ``gateway'' requirement, 
     however, the plan must benefit a classification of employees 
     that does not discriminate in favor of highly compensated 
     employees in order for the employer to apply the minimum 
     coverage requirements separately for the employees in each 
     separate line of business. A plan satisfies this gateway 
     requirement only if it satisfies one of the tests specified 
     in the applicable Treasury regulations.


                               House Bill

       The Secretary of the Treasury is directed to provide by 
     regulation applicable to years beginning after December 31, 
     2000, that a plan is deemed to satisfy the nondiscrimination 
     requirements of section 401(a)(4) if the plan satisfies the 
     pre-1994 facts and circumstances test, satisfies the 
     conditions prescribed by the Secretary to appropriately limit 
     the availability of such test,69 and is submitted 
     to the Secretary for a determination of whether it satisfies 
     such test (to the extent provided by the Secretary).
---------------------------------------------------------------------------
     \69\ Any conditions prescribed by the Secretary cannot be 
     effective before the first year beginning not less than 120 
     days after the date on which the condition is prescribed.
---------------------------------------------------------------------------
       Similarly, a plan complies with the minimum coverage 
     requirement of section 410(b) if the plan satisfies the pre-
     1989 coverage rules, is submitted to the Secretary for a 
     determination of whether it satisfies the pre-1989 coverage 
     rules (to the extent provided by the Secretary), and 
     satisfies conditions prescribed by the Secretary by 
     regulation that appropriately limit the availability of the 
     pre-1989 coverage rules.70
---------------------------------------------------------------------------
     \70\ Any conditions prescribed by the Secretary cannot be 
     effective before the first year beginning not less than 120 
     days after the date on which the condition is prescribed.
---------------------------------------------------------------------------
       The Secretary of the Treasury is directed to modify, on or 
     before December 31, 2000, the existing regulations issued 
     under section 414(r) in order to expand (to the extent that 
     the Secretary may determine to be appropriate) the ability of 
     a plan to demonstrate compliance with the line of business 
     requirements based upon the facts and circumstances 
     surrounding the design and operation of the plan, even though 
     the plan is unable to satisfy the mechanical tests currently 
     used to determine compliance.
       Effective date.--The provision is effective on the date of 
     enactment.


                            Senate Amendment

       The Senate amendment is the same as the House bill, with 
     the following modification. The Senate amendment provides 
     that the regulations required with respect to the 
     nondiscrimination requirements of section 401(a)(4), the 
     minimum coverage requirements of section 410(b), and the line 
     of business requirements of section 414(r) are to be issued 
     or effective, whichever is applicable, by December 31, 2001.


                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     the following modification. The conference agreement provides 
     that the regulations required with respect to the 
     nondiscrimination requirements of section 401(a)(4), the 
     minimum coverage requirements of section 410(b), and the line 
     of business requirements of section 414(r) are to be issued 
     or effective, whichever is applicable, by December 31, 2002.

J. Extension to All Governmental Plans of Moratorium on Application of 
     Certain Nondiscrimination Rules Applicable to State and Local 
 Government Plans (sec. 610 of the House bill, sec. 610 of the Senate 
amendment, and sec. 1505 of the Taxpayer Relief Act of 1997, and secs. 
                     401(a) and 401(k) of the Code)


                              Present Law

       All governmental plans are exempt from the minimum coverage 
     requirements (sec. 410(b)). A qualified retirement plan 
     maintained by a State or local government is exempt from the 
     rules concerning nondiscrimination (sec. 401(a)(4)) and 
     minimum participation (sec. 401(a)(26)). All other 
     governmental plans are not exempt from the nondiscrimination 
     and minimum participation rules.


                               House Bill

       The provision exempts all governmental plans (as defined in 
     sec. 414(d)) from the nondiscrimination and minimum 
     participation rules.
       Effective date.--The provision is effective for plan years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill.


                          Conference Agreement

       The conference agreement follows the House bill and the 
     Senate amendment.

  K. Notice and Consent Period Regarding Distributions; Disclosure of 
Optional Forms of Benefit (sec. 611 of the House bill, sec. 611 of the 
     Senate amendment, and secs. 402(f), 411, and 417 of the Code)


                              Present Law

       Notice and consent requirements apply to certain 
     distributions from qualified retirement plans. These 
     requirements relate to the content and timing of information 
     that a plan must provide to a participant prior to a 
     distribution, and to whether the plan must obtain the 
     participant's consent to the distribution. The nature and 
     extent of the notice and consent requirements applicable to a 
     distribution depend upon the value of the participant's 
     vested accrued benefit and whether the joint and survivor 
     annuity requirements (sec. 417) apply to the 
     participant.71
---------------------------------------------------------------------------
     \71\ Similar provisions are contained in Title I of ERISA.
---------------------------------------------------------------------------
       If the present value of the participant's vested accrued 
     benefit exceeds $5,000, the plan may not distribute the 
     participant's benefit without the written consent of the 
     participant. The participant's consent to a distribution is 
     not valid unless the participant has received from the plan a 
     notice that contains a written explanation of (1) the 
     material features and the relative values of the optional 
     forms of benefit available under the plan, (2) the 
     participant's right, if any, to have the distribution 
     directly transferred to another retirement plan or IRA, and 
     (3) the rules concerning the taxation of a distribution. If 
     the joint and survivor annuity requirements apply to the 
     participant, this notice also must contain a written 
     explanation of (1) the terms and conditions of the qualified 
     joint and survivor annuity (``QJSA''), (2) the participant's 
     right to make, and the effect of, an election to waive the 
     QJSA, (3) the rights of the participant's spouse with respect 
     to a participant's waiver of the QJSA, and (4) the right to 
     make, and the effect of, a revocation of a waiver of the 
     QJSA. The plan generally must provide this notice to the 
     participant no less than 30 and no more than 90 days before 
     the date distribution commences.
       If the participant's vested accrued benefit does not exceed 
     $5,000, the terms of the plan may provide for distribution 
     without the participant's consent. The plan generally is 
     required, however, to provide to the participant a notice 
     that contains a written explanation of (1) the participant's 
     right, if any, to have the distribution directly transferred 
     to another retirement plan or IRA, and (2) the rules 
     concerning the taxation of a distribution. The plan generally 
     must provide this notice to the participant no less than 30 
     and no more than 90 days before the date distribution 
     commences.
       The plan administrator is required to provide to the 
     distributee of an eligible rollover distribution an 
     explanation of the rollover and withholding rules applicable 
     to the distribution. This notice must generally be provided 
     no less than 30 days and not more than 90 days before the 
     date of the distribution.


                               House Bill

       A qualified retirement plan is required to provide the 
     applicable distribution notice no less than 30 days and no 
     more than 180 days before the date distribution commences. 
     The Secretary of the Treasury is directed to modify the 
     applicable regulations to reflect the extension of the notice 
     period to 180 days and to provide that the description of a 
     participant's right, if any, to defer receipt of a 
     distribution shall also describe the consequences of failing 
     to defer such receipt.
       Effective date.--The provision is effective for years 
     beginning after December 31, 2000.


                            Senate Amendment

       The Senate amendment is the same as the House bill with 
     respect to the notice and consent period regarding 
     distributions.
       In addition, the Senate amendment requires that plan 
     participants be notified of the existence of certain 
     differences between the values of optional forms of benefit. 
     If a plan provides optional forms of benefits and the present 
     values of such optional forms of benefits are not actuarially 
     equivalent as of the annuity starting date, then the plan is 
     required to provide certain information regarding such 
     benefits in the notice required to be provided regarding 
     joint and survivor annuities. The information must be 
     sufficient (as determined in accordance with Treasury 
     regulations) to allow the participant to understand the 
     differences in the

[[Page H10990]]

     present values of the optional forms of benefits and the 
     effect the participant's election as to the form of benefit 
     will have on the value of the benefits provided under the 
     plan. The information must be provided in a manner calculated 
     to be reasonably understood by the average plan participant.
       Effective date.--Same as the House bill.


                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     the following modification. With respect to the disclosure of 
     the differences between the values of optional forms of 
     benefits, the conference agreement directs the Secretary of 
     the Treasury to issue, not later than December 31, 2001, 
     final regulations under section 417(a)(3). These regulations 
     are to provide that, if a defined benefit plan offers both a 
     qualified joint and survivor annuity and a single sum 
     optional form of benefit, and the distributable amount under 
     such single sum option is less than the present value 
     (determined in accordance with section 417(e)) of the 
     qualified joint and survivor annuity commencing as of the 
     same annuity starting date, the applicable distribution 
     notice shall include sufficient information to permit the 
     participant to understand the difference between the present 
     value of the qualified joint and survivor annuity and the 
     amount of the single sum. If the plan offers an unmarried 
     participant one or more annuity options that are 
     substantially more valuable than the qualified joint and 
     survivor annuity offered by the plan, the required comparison 
     shall be made between the single sum option and the most 
     valuable of the other annuity options. The conference 
     agreement provides that the regulations shall apply to 
     distributions made not earlier than 6 months after the 
     date the regulations are issued.

 L. Annual Report Dissemination (sec. 612 of the Senate amendment and 
                        sec. 104(b)(3) of ERISA)


                              Present Law

       Title I of ERISA generally requires the plan administrator 
     of each employee pension benefit plan and each employee 
     welfare benefit plan to file an annual report concerning the 
     plan with the Secretary of Labor within seven months after 
     the end of the plan year. Within nine months after the end of 
     the plan year, the plan administrator generally must provide 
     to each participant and to each beneficiary receiving 
     benefits under the plan a summary of the annual report filed 
     with the Secretary of Labor for the plan year.


                               House Bill

       No provision.


                            Senate Amendment

       Within nine months after the end of each plan year, the 
     plan administrator is required to make available for 
     examination a summary of the annual report filed with the 
     Secretary of Labor for the plan year. In addition, the plan 
     administrator is required to furnish the summary to a 
     participant, or to a beneficiary receiving benefits under the 
     plan, upon request.
       Effective date.--The provision is effective for reports for 
     years beginning after December 31, 1999.


                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     the following modification. The conference agreement provides 
     that the requirement that the summary annual report be 
     provided to participants and beneficiaries is satisfied if 
     the report is reasonably available through electronic means 
     or other new technology.

M. Modifications to the SAVER Act (sec. 613 of the Senate amendment and 
                           sec. 517 of ERISA)


                              Present Law

       The Savings Are Vital to Everyone's Retirement (``SAVER'') 
     Act 72 initiated a public-private partnership to 
     educate American workers about retirement savings and 
     directed the Department of Labor to maintain an ongoing 
     program of public information and outreach. The Act also 
     convened a National Summit on Retirement Savings held June 4-
     5, 1998, and to be held again in 2001 and 2005, co-hosted by 
     the President and the bipartisan Congressional leadership. 
     The National Summit brings together experts in the fields of 
     employee benefits and retirement savings, key leaders of 
     government, and interested parties from the private sector 
     and general public. The delegates are selected by the 
     Congressional leadership and the President. The National 
     Summit is a public-private partnership, receiving substantial 
     funding from private sector contributions. The goals of the 
     National Summits are to: (1) advance the public's knowledge 
     and understanding of retirement savings and facilitate the 
     development of a broad-based, public education program; (2) 
     identify the barriers which hinder workers from setting aside 
     adequate savings for retirement and impede employers, 
     especially small employers, from assisting their workers in 
     accumulating retirement savings; and (3) develop specific 
     recommendations for legislative, executive, and private 
     sector actions to promote retirement income savings among 
     American workers.
---------------------------------------------------------------------------
     \72\  Pub. L. No. 105-92.
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       The provision clarifies that future National Summits on 
     Retirement Savings are to be held in the month of September 
     in 2001 and 2005, and would add an additional National Summit 
     in 2009. To facilitate the administration of future National 
     Summits, the Department of Labor is given authority to enter 
     into cooperative agreements (pursuant to the Federal Grant 
     and Cooperative Agreement Act of 1977) with its 1999 summit 
     partner, the American Savings Education Council.
       Six new statutory delegates are added to future National 
     Summits: the Chairman and Ranking Member of the House Ways 
     and Means Committee, the Senate Finance Committee, and the 
     Subcommittee on Employer-Employee Relations of the House 
     Committee on Education and the Workforce. Further, the 
     President, in consultation with the Congressional leadership, 
     may appoint up to three percent of the delegates (not to 
     exceed 10) from a list of nominees provided by the private 
     sector partner in Summit administration. The provision also 
     clarifies that new delegates are to be appointed for each 
     future National Summit (as was the intent of the original 
     legislation) and sets deadlines for their appointment.
       The provision also sets deadlines for the Department of 
     Labor to publish the Summit agenda, gives the Department of 
     Labor limited reception and representation authority, and 
     mandates that the Department of Labor consult with the 
     Congressional leadership in drafting the post-Summit report.
       Effective date.--The provision is effective on the date of 
     enactment.


                          Conference Agreement

       The conference agreement follows the Senate amendment.

             N. Studies (sec. 614 of the Senate amendment)


                              Present Law

       No provision.


                               House Bill

       No provision.


                            Senate Amendment

     Report on pension coverage
       The bill directs the Secretary to report to the Senate 
     Committee on Finance and the House Committee on Ways and 
     Means regarding the effect of the bill on pension coverage, 
     including any expansion of coverage for low- and moderate-
     income workers, levels of pension benefits, quality of 
     coverage, worker's access to and participation in plans, and 
     retirement security. This report is required to be submitted 
     no later than five years after the date of enactment.
     Studies of preretirement uses of benefits and investment 
         decisions
       The bill directs the Secretary to conduct a study of the 
     present-law rules that permit individuals to access their IRA 
     or qualified retirement plan benefits prior to retirement, 
     including an analysis of the use of the existing rules and 
     the extent to which such rules undermine the goal of 
     accumulating adequate resources for retirement. In addition, 
     the Secretary of the Treasury is directed to conduct a study 
     of the types of investment decisions made by IRA owners and 
     participants in self-directed qualified retirement plans, 
     including an analysis of the existing restrictions on 
     investments and the extent to which additional restrictions 
     would facilitate the accumulation of adequate income for 
     retirement. The studies are required to be submitted to the 
     Senate Committee on Finance and the House Committee on Ways 
     and Means no later than January 1, 2002.
     Effective date
       The provisions are effective on the date of enactment.


                          Conference Agreement

       The conference agreement follows the Senate amendment, with 
     the following modification. The conference agreement does not 
     direct the Secretary to conduct the study relating to pre-
     retirement access to IRA or qualified retirement plan assets 
     or the study relating to the types of investment decisions 
     made by IRA owners and participants in self-directed 
     qualified retirement plans.

     TITLE VII: OTHER ERISA PROVISIONS (secs. 471-478 of the bill)

  A. Extension of PBGC Missing Participants Program (secs. 206(f) and 
                             4050 of ERISA)


                              Present Law

       The plan administrator of a single-employer defined benefit 
     pension plan that is subject to Title IV of ERISA and 
     terminates under a standard termination is required to 
     distribute the assets of the plan. With respect to a 
     participant whom the plan administrator cannot locate after a 
     diligent search, the plan administrator satisfies the 
     distribution requirement only by purchasing irrevocable 
     commitments from an insurer to provide all benefit 
     liabilities under the plan or transferring the participant's 
     designated benefit to the Pension Benefit Guaranty 
     Corporation (``PBGC''), which holds the benefit of the 
     missing participant as trustee until the PBGC locates the 
     missing participant and distributes the benefit.
       The PBGC missing participant program is not available to 
     multiemployer plans or defined contribution plans and other 
     plans not covered by Title IV of ERISA.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The PBGC is directed to prescribe for terminating 
     multiemployer plans rules similar

[[Page H10991]]

     to the present-law missing participant rules applicable to 
     terminating single employer plans that are subject to Title 
     IV of ERISA.
       In addition, plan administrators of certain types of plans 
     not subject to the PBGC termination insurance program under 
     present law are permitted, but not required, to elect to 
     transfer missing participants' benefits to the PBGC upon plan 
     termination. Specifically, the provision extends the missing 
     participants program to defined contribution plans, defined 
     benefit plans that have no more than 25 active participants 
     and are maintained by professional service employers, and the 
     portion of defined benefit plans that provide benefits based 
     upon the separate accounts of participants and therefor are 
     treated as defined contribution plans under ERISA.
       Effective date.--The provision is effective for 
     distributions made after final regulations under the 
     provision are prescribed.

  B. Reduce PBGC Premiums for Small and New Plans (sec. 4006 of ERISA)


                              Present Law

       Under present law, the Pension Benefit Guaranty Corporation 
     (``PBGC'') provides insurance protection for participants and 
     beneficiaries under certain defined benefit pension plans by 
     guaranteeing certain basic benefits under the plan in the 
     event the plan is terminated with insufficient assets to pay 
     benefits promised under the plan. The guaranteed benefits are 
     funded in part by premium payments from employers who sponsor 
     defined benefit plans. The amount of the required annual PBGC 
     premium for a single-employer plan is generally a flat rate 
     premium of $19 per participant and an additional variable-
     rate premium based on a charge of $9 per $1,000 of unfunded 
     vested benefits. Unfunded vested benefits under a plan 
     generally means (1) the unfunded current liability for vested 
     benefits under the plan, over (2) the value of the plan's 
     assets, reduced by any credit balance in the funding standard 
     account. No variable-rate premium is imposed for a year if 
     contributions to the plan were at least equal to the full 
     funding limit.
       The PBGC guarantee is phased in ratably in the case of 
     plans that have been in effect for less than 5 years, and 
     with respect to benefit increases from a plan amendment that 
     was in effect for less than 5 years before termination of the 
     plan.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

     Reduced flat-rate premiums for new plans of small employers
       Under the conference agreement, for the first five plan 
     years of a new single-employer plan of a small employer, the 
     flat-rate PBGC premium is $5 per plan participant.
       A small employer is a contributing sponsor that, on the 
     first day of the plan year, has 100 or fewer employees. For 
     this purpose, all employees of the members of the controlled 
     group of the contributing sponsor are taken into account. In 
     the case of a plan to which more than one unrelated 
     contributing sponsor contributes, employees of all 
     contributing sponsors (and their controlled group members) 
     are taken into account in determining whether the plan is a 
     plan of a small employer.
       A new plan means a defined benefit plan maintained by a 
     contributing sponsor if, during the 36-month period ending on 
     the date of adoption of the plan, such contributing sponsor 
     (or controlled group member or a predecessor of either) has 
     not established or maintained a plan subject to PBGC coverage 
     with respect to which benefits were accrued for substantially 
     the same employees as are in the new plan.
     Reduced variable-rate PBGC premium for new plans
       The provision provides that the variable-rate premium is 
     phased in for new defined benefit plans over a six-year 
     period starting with the plan's first plan year. The amount 
     of the variable-rate premium is a percentage of the variable 
     premium otherwise due, as follows: 0 percent of the otherwise 
     applicable variable-rate premium in the first plan year; 20 
     percent in the second plan year; 40 percent in the third plan 
     year; 60 percent in the fourth plan year; 80 percent in the 
     fifth plan year; and 100 percent in the sixth plan year (and 
     thereafter).
       A new defined benefit plan is defined as described above 
     under the flat-rate premium provision relating to new small 
     employer plans.
     Reduced variable-rate PBGC premium for small plans
       In the case of a plan of a small employer, the variable-
     rate premium is no more than $5 multiplied by the number of 
     plan participants in the plan at the end of the preceding 
     plan year. For purposes of this provision, a small employer 
     is a contributing sponsor that, on the first day of the plan 
     year, has 25 or fewer employees. For this purpose, all 
     employees of the members of the controlled group of the 
     contributing sponsor are taken into account. In the case of a 
     plan to which more than one unrelated contributing sponsor 
     contributes, employees of all contributing sponsors (and 
     their controlled group members) are taken into account in 
     determining whether the plan is a plan of a small employer.
     Effective date
       The reduction of the flat-rate premium for new plans of 
     small employers and the reduction of the variable-rate 
     premium for new plans are effective with respect to plans 
     established after December 31, 2000. The reduction of the 
     variable-rate premium for small plans is effective with 
     respect to plan years beginning after December 31, 2000.

   C. Authorization for PBGC to Pay Interest on Premium Overpayment 
                    Refunds (sec. 4007(b) of ERISA)


                              Present Law

       The PBGC charges interest on underpayments of premiums, but 
     is not authorized to pay interest on overpayments.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement allows the PBGC to pay interest on 
     overpayments made by premium payors. Interest paid on 
     overpayments is to be calculated at the same rate and in the 
     same manner as interest is charged on premium underpayments.
       Effective date.--The provision is effective with respect to 
     interest accruing for periods beginning not earlier than the 
     date of enactment.

  D. Rules for Substantial Owner Benefits in Terminated Plans (secs. 
                  4021, 4022, 4043 and 4044 of ERISA)


                              Present Law

       Under present law, the PBGC provides participants and 
     beneficiaries in a defined benefit pension plan with certain 
     guarantees as to the receipt of benefits under the plan in 
     case of plan termination. The employer sponsoring the defined 
     benefit pension plan is required to pay premiums to the PBGC 
     to provide insurance for the guaranteed benefits. In general, 
     the PBGC will guarantee all basic benefits which are payable 
     in periodic installments for the life (or lives) of the 
     participant and his or her beneficiaries and are non-
     forfeitable at the time of plan termination. The amount of 
     the guaranteed benefit is subject to certain limitations. One 
     limitation is that the plan (or an amendment to the plan 
     which increases benefits) must be in effect for 60 months 
     before termination for the PBGC to guarantee the full amount 
     of basic benefits for a plan participant, other than a 
     substantial owner. In the case of a substantial owner, the 
     guaranteed basic benefit is phased in over 30 years beginning 
     with participation in the plan. A substantial owner is one 
     who owns the entire interest in an unincorporated trade or 
     business, or who owns, directly or indirectly, more than 10 
     percent of the voting stock of a corporation or all the stock 
     of a corporation, or, in the case of a partnership, one who 
     owns, directly or indirectly, more than 10 percent of either 
     the capital interest or profits interest. Special rules 
     restricting the amount of benefit guaranteed and the 
     allocation of assets also apply to substantial owners.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The provision provides that the 60 month phase-in of 
     guaranteed benefits applies to a substantial owner with less 
     than a 50 percent ownership interest. For a substantial owner 
     with a 50 percent or more ownership interest (``majority 
     owner''), the phase-in occurs over a 10-year period and 
     depends on the number of years the plan has been in effect. 
     The majority owner's guaranteed benefit is limited so that it 
     may not be more than the amount phased in over 60 months for 
     other participants. The rules regarding allocation of assets 
     apply to substantial owners, other than majority owners, in 
     the same manner as other participants.
       Effective date.--The provision is effective for plan 
     terminations with respect to which notices of intent to 
     terminate are provided, or for which proceedings for 
     termination are instituted by the PBGC, after December 31, 
     2000.

     E. Multiemployer Plan Benefits Guarantee (sec. 4022A of ERISA)


                              Present Law

       The PBGC guarantees benefits of workers in multiemployer 
     plans. The monthly guarantee is equal to the participant's 
     years of service multiplied by the sum of (1) 100 percent of 
     the first $5 of the monthly benefit accrual rate, and (2) 75 
     percent of the next $15 of the accrual rate. The level of 
     benefits guaranteed by the PBGC under the multiemployer 
     program has not increased since 1980. For a retiree with 30 
     years of service, the maximum guaranteed annual benefit is 
     $5,850. The maximum guarantee under the PBGC's single-
     employer program is adjusted each year to reflect changes in 
     the social security wage index.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement adjusts the amount guaranteed in 
     multiemployer plans to account for changes in the social 
     security wage index since 1980. Under the conference 
     agreement, the PBGC guarantees a monthly benefit equal to the 
     participant's years of

[[Page H10992]]

     service multiplied by the sum of (1) 100 percent of the first 
     $11 of the monthly benefit accrual rate, and (2) 75 percent 
     of the next $33 of the accrual rate. Thus, the conference 
     agreement increases the maximum annual guarantee for a 
     retiree with 30 years of service to $12,870.
       Effective date.--The provision applies to benefits payable 
     after the date of enactment, except that the provision does 
     not apply to benefits under any multiemployer plan that has 
     received financial assistance from the PBGC under section 
     4261 of ERISA within the 1-year period ending on the date of 
     enactment.

F. Civil Penalties for Breach of Fiduciary Responsibility (sec. 502 of 
                                 ERISA)


                              Present Law

       Present law requires the Secretary of Labor to assess a 
     civil penalty against (1) a fiduciary who breaches a 
     fiduciary responsibility under, or commits a violation of, 
     part 4 of Title I of ERISA, or (2) any other person who 
     knowingly participates in such a breach or violation. The 
     penalty is equal to 20 percent of the ``applicable 
     recovery amount'' that is paid pursuant to a settlement 
     agreement with the Secretary of Labor or that a court 
     orders to be paid in a judicial proceeding brought by the 
     Secretary of Labor to enforce ERISA's fiduciary 
     responsibility provisions. The Secretary of Labor may 
     waive or reduce the penalty only if the Secretary finds in 
     writing that either (1) the fiduciary or other person 
     acted reasonably and in good faith, or (2) it is 
     reasonable to expect that the fiduciary or other person 
     cannot restore all the losses without severe financial 
     hardship unless the waiver or reduction is granted.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement makes the assessment of the 
     penalty discretionary with the Secretary of Labor, rather 
     than mandatory. This change will allow the Secretary to 
     refrain from imposing the penalty in certain cases as well as 
     to assess a penalty of less than 20 percent of the applicable 
     recovery amount. The requirement of a settlement agreement is 
     also eliminated. The applicable recovery amount is any amount 
     recovered by a plan or by a participant or beneficiary more 
     than 30 days after the fiduciary's or other person's receipt 
     of a written notice of the violation from the Department of 
     Labor (``DOL''). Payments made after the 30-day grace 
     period,73 whether they are made pursuant to a 
     settlement agreement, or simply to discourage the DOL from 
     bringing a legal action, are subject to the penalty, as are 
     amounts recovered pursuant to a court order. ERISA section 
     502(l) is also amended to clarify that the term ``applicable 
     recovery amount'' includes payments by third parties that are 
     made on behalf of the relevant fiduciary or other persons 
     liable for the amount that is recovered, including those who 
     did not actually pay. These changes prevent avoidance of the 
     penalty by having an unrelated third party pay the recovery 
     amount.
---------------------------------------------------------------------------
     \73\ The 30-day period may be extended by the Secretary of 
     Labor.
---------------------------------------------------------------------------
       Effective date.--The provision applies to any breach of 
     fiduciary responsibility or other violation of part 4 of 
     Title I of ERISA occurring on or after the date of enactment. 
     The change with respect to ``applicable recovery amount'' 
     includes a transition rule whereby a breach or other 
     violation occurring before the date of enactment which 
     continues past the 180th day from enactment (and which may 
     have been discontinued during that period) is treated as 
     having occurred after the date of enactment (to avoid having 
     to make a complex determination regarding how much of the 
     applicable recovery amount for such continuing violations 
     should be attributed to the post-enactment part of the 
     violation).

            G. Benefit Suspension Notice (sec. 203 of ERISA)


                              Present Law

       Under present law (ERISA sec. 203(a)(3)(B)), a plan will 
     not fail to satisfy the vesting requirements with respect to 
     a participant by reason of suspending payment of the 
     participant's benefits while such participant is employed. 
     Under the applicable Department of Labor (``DOL'') 
     regulations, such a suspension is only permissible if the 
     plan notifies the participant during the first calendar month 
     or payroll period in which the plan withholds benefit 
     payments. Such notice must provide certain information and 
     must also include a copy of the plan's provisions relating to 
     the suspension of payments.
       In the case of a plan that does not pay benefits to active 
     participants upon attainment of normal retirement age, the 
     employer must monitor plan participants to determine when any 
     participant who is still employed attains normal retirement 
     age. In order to suspend payment of such a participant's 
     benefits, generally a plan must, as noted above, promptly 
     provide the participant with a suspension notice.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement directs the Secretary of Labor to 
     revise the regulations relating to the benefit suspension 
     notice to generally permit the information currently required 
     to be set forth in a suspension notice to be included in the 
     summary plan description. The provision also directs the 
     Secretary of Labor to eliminate the requirement that the 
     notice include a copy of relevant plan provisions. However, 
     individuals reentering the workforce to resume work with a 
     former employer after they have begun to receive benefits 
     will still receive the notification of the suspension of 
     benefits (and a copy of the plan's provisions relating to 
     suspension of payments). In addition, if a reduced rate of 
     future benefit accruals will apply to a returning employee 
     (as of his or her first date of participation in the plan 
     after returning to work) who has begin to receive benefits, 
     the notice must include a statement that the rate of future 
     benefit accruals will be reduced.
       Effective date.--The provision applies to plan years 
     beginning after December 31, 2000.

  Subtitle H. Provisions Relating to Plan Amendments (sec. 481 of the 
bill) (sec. 701 of the House bill and sec. 701 of the Senate Amendment)


                              Present Law

       Plan amendments to reflect amendments to the law generally 
     must be made by the time prescribed for filing the income tax 
     return of the employer for the employer's taxable year in 
     which the change in the law occurs.
       A plan amendment may not decrease the accrued benefit of a 
     plan participant (sec. 411(d)(6)).


                               House Bill

       The House bill permits certain plan amendments made 
     pursuant to the changes made by the bill (or regulations 
     issued under the provisions of the bill) to be retroactively 
     effective. If the plan amendment meets the requirements of 
     the bill, then the plan is treated as being operated in 
     accordance with its terms and the amendment does not violate 
     the prohibition of reductions of accrued benefits. In order 
     for this treatment to apply, the plan amendment must be made 
     on or before the last day of the first plan year beginning on 
     or after January 1, 2003 (January 1, 2005, in the case of a 
     governmental plan). If the amendment is required to be made 
     to retain qualified status as a result of the changes in the 
     bill (or regulations) the amendment must be made 
     retroactively effective as of the date on which the change 
     became effective with respect to the plan and the plan must 
     be operated in compliance until the amendment is made. 
     Amendments that are not required to retain qualified status 
     but that are made pursuant to the changes made by the bill 
     (or applicable regulations) may be made retroactive as of the 
     first day the plan was operated in accordance with the 
     amendment.
       Effective date.--The provision is effective on the date of 
     enactment.


                            Senate Amendment

       The Senate amendment is the same as the House bill, except 
     that the Senate amendment does not provide relief from the 
     prohibition on reductions of accrued benefits.


                          Conference Agreement

       The conference agreement follows the House bill, with the 
     modification described below. As under the House bill, the 
     provision applies to plan amendments required to maintain 
     qualified status, as well as other amendments pursuant to the 
     provisions of the bill (or applicable regulations). A plan 
     amendment is not considered to be pursuant to the bill (or 
     applicable regulations) if it has an effective date before 
     the effective date of the provision of the bill (or 
     regulations) to which it relates. Similarly, the provision 
     does not provide relief from section 411(d)(6) for periods 
     prior to the effective date of the relevant provision of the 
     bill (or regulations) or the plan amendment.
       The conference agreement provides that the Secretary is 
     given authority to provide exceptions to the relief from the 
     prohibition on reductions in accrued benefits. It is intended 
     that the Secretary will not permit inappropriate reductions 
     in contributions or benefits that are not directly related to 
     the provisions of the bill. For example, it is intended that 
     a plan that incorporates the section 415 limits by reference 
     could be retroactively amended to impose the section 415 
     limits in effect before the bill. On the other hand, suppose 
     a plan that incorporates the section 401(a)(17) limit on 
     compensation by reference provides for an employer 
     contribution of 3 percent of compensation. It is expected 
     that the Secretary would provide that the plan could not be 
     amended retroactively to reduce the contribution percentage, 
     even though the reduction will result in the same dollar 
     level of contributions for some participants because of the 
     increase in compensation taken into account under the plan. 
     As another example, suppose that under present law a plan is 
     top-heavy and therefore a minimum benefit is required under 
     the plan, and that under the provisions of the bill, the plan 
     would not be considered to be top heavy. It is expected that 
     the Secretary would generally permit plans to be 
     retroactively amended to reflect the new top-heavy provisions 
     of the bill.

[[Page H10993]]

 TITLE V. INCENTIVES FOR PUBLIC SCHOOL CONSTRUCTION AND MODERNIZATION 
  (secs. 501-505 of the bill and secs. 103, 148, 1397E and new secs. 
                      1397F and 1397G of the Code)


                              Present Law

     Tax-exempt bonds
       In general
       Interest on debt incurred by States or local governments is 
     excluded from income if the proceeds of the borrowing are 
     used to carry out governmental functions of those entities or 
     the debt is repaid with governmental funds (sec. 103). Like 
     other activities carried out and paid for by States and local 
     governments, the construction, renovation, and operation of 
     public schools is an activity eligible for financing with the 
     proceeds of tax-exempt bonds.
       Interest on bonds that nominally are issued by States or 
     local governments, but the proceeds of which are used 
     (directly or indirectly) by a private person and payment of 
     which is derived from funds of such a private person is 
     taxable unless the purpose of the borrowing is approved 
     specifically in the Code or in a non-Code provision of a 
     revenue Act. These bonds are called ``private activity 
     bonds.'' The term ``private person'' includes the Federal 
     Government and all other individuals and entities other than 
     States or local governments.
       Private activities eligible for financing with tax-exempt 
           private activity bonds
       The Code includes several exceptions permitting States or 
     local governments to act as conduits providing tax-exempt 
     financing for private activities. Both capital expenditures 
     and limited working capital expenditures of charitable 
     organizations described in section 501(c)(3) of the Code--
     including elementary, secondary, and post-secondary schools--
     may be financed with tax-exempt private activity bonds 
     (``qualified 501(c)(3) bonds'').
       In most cases, the volume of tax-exempt private activity 
     bonds is restricted by aggregate annual limits imposed on 
     bonds issued by issuers within each State. These annual 
     volume limits equal $50 per resident of the State, or $150 
     million if greater. The annual State private activity bond 
     volume limits are scheduled to increase to the greater of $75 
     per resident of the State or $225 million in calendar year 
     2007. The increase will be phased in ratably beginning in 
     calendar year 2003.1 This increase was enacted by 
     the Tax and Trade Relief Extension Act of 1998. Qualified 
     501(c)(3) bonds are among the tax-exempt private activity 
     bonds that are not subject to these volume limits.
---------------------------------------------------------------------------
     \1\ Another provision of the conference agreement accelerates 
     this increase in the volume limits in 2002.
---------------------------------------------------------------------------
       Private activity tax-exempt bonds may not be used to 
     finance schools owned or operated by private, for-profit 
     businesses.
       Arbitrage restrictions on tax-exempt bonds
       The Federal income tax does not apply to income of States 
     and local governments that is derived from the exercise of an 
     essential governmental function. To prevent these tax-exempt 
     entities from issuing more Federally subsidized tax-exempt 
     bonds than is necessary for the activity being financed or 
     from issuing such bonds earlier than necessary, the Code 
     includes arbitrage restrictions limiting the ability to 
     profit from investment of tax-exempt bond proceeds. In 
     general, arbitrage profits may be earned only during 
     specified periods (e.g., defined ``temporary periods'') 
     before funds are needed for the purpose of the borrowing or 
     on specified types of investments (e.g., ``reasonably 
     required reserve or replacement funds''). Subject to limited 
     exceptions, investment profits that are earned during these 
     periods or on such investments must be rebated to the Federal 
     Government.
       The Code includes three exceptions applicable to education-
     related bonds. First, issuers of all types of tax-exempt 
     bonds are not required to rebate arbitrage profits if all of 
     the proceeds of the bonds are spent for the purpose of the 
     borrowing within six months after issuance. In the case of 
     governmental bonds (including bonds to finance public 
     schools) the six-month expenditure exception is treated as 
     satisfied if at least 95 percent of the proceeds is spent 
     within six months and the remaining five percent is spent 
     within 12 months after the bonds are issued.
       Second, in the case of bonds to finance certain 
     construction activities, including school construction and 
     renovation, the six-month period is extended to 24 months for 
     construction proceeds. Arbitrage profits earned on 
     construction proceeds are not required to be rebated if all 
     such proceeds (other than certain retainage amounts) are 
     spent by the end of the 24-month period and prescribed 
     intermediate spending percentages are satisfied.
       Third, governmental bonds issued by ``small'' governments 
     are not subject to the rebate requirement. Small governments 
     are defined as general purpose governmental units that issue 
     no more than $5 million of tax-exempt governmental bonds in a 
     calendar year. The $5 million limit is increased to $10 
     million if at least $5 million of the bonds are used to 
     finance public schools.
       Another exception to the arbitrage restriction, enacted as 
     part of the Tax Reform Act of 1984, provides that the pledge 
     of income from investments in a Fund established under a 
     provision of a State constitution adopted in 1876 as security 
     for a limited amount of tax-exempt bonds will not cause 
     interest on those bonds to be taxable. The terms of this 
     exception are limited to State constitutional or statutory 
     restrictions in effect as of October 9, 1969. The Fund 
     consists of certain State lands that were set aside for the 
     benefit of higher education, the income from mineral rights 
     to these lands, and certain other earnings on Fund assets. 
     The State constitution directs that monies held in the Fund 
     are to be invested in interest-bearing obligations and other 
     securities. The State constitution does not permit the 
     expenditure or mortgage of the Fund for any purpose. Income 
     from the Fund is apportioned between two university systems 
     operated by the State. Tax-exempt bonds issued by the two 
     university systems are secured by and payable from the income 
     of the Fund. These bonds are used to finance buildings and 
     other permanent improvements for the universities.
       The General Assembly of the State approved proposed 
     constitutional amendments regarding the manner in which 
     amounts in the Fund are paid for the benefit of the two 
     university systems. These amendments were voted on and passed 
     by the State's citizens in November 1999. The State 
     constitutional amendments have the effect of permitting the 
     Fund to make annual distributions similar to standard 
     university endowment funds, rather than the previous 
     practice, which tied distributions to annual income 
     performance, creating a variable pattern of distributions. 
     Since these amendments were not in effect as of October 9, 
     1969, the amendments eliminate the benefits of the 1984 
     exception from the tax-exempt bond arbitrage restrictions.
     Qualified Zone Academy Bonds (``QZABs'')
       As an alternative to traditional tax-exempt bonds, certain 
     States and local governments are given the authority to issue 
     ``qualified zone academy bonds.'' Under present law, $400 
     million of qualified zone academy bonds may be issued per 
     year in 1998, 1999, 2000, and 2001. The $400 million bond 
     authority is allocated each year among the States according 
     to their respective populations of individuals below the 
     poverty line. Each State, in turn, allocates the credit to 
     qualified zone academies within such State. A State may carry 
     over any unused allocation into subsequent years (the first 
     two years following the unused limitation year; three years 
     for carryforwards from 1998 or 1999).
       To be a qualified zone academy bond, a bond must satisfy 
     several requirements. First, the bond must be issued pursuant 
     to an allocation of bond authority from the issuer's State 
     educational agency. Second, at least 95 percent of the bond 
     proceeds must be used for an eligible purpose at a qualified 
     zone academy. Eligible purposes include renovating school 
     facilities, acquiring equipment, developing course materials, 
     or training teachers. A qualified zone academy is a public 
     school (or an academic program within a public school) that 
     is designed in cooperation with business and is either (1) 
     located in an empowerment zone or enterprise community or (2) 
     attended by students at least 35 percent of whom are 
     estimated to be eligible for free or reduced-cost lunches 
     under the National School Lunch Act. Finally, private 
     businesses must have promised to contribute to the qualified 
     zone academy certain property or services with a present 
     value equal to at least 10 percent of the bond proceeds.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

     Extension of authority to issue present-law QZABs
       The conference agreement extends authority to issue QZABs 
     for two additional years, through December 31, 2003. Except 
     as described below, present-law requirements for these bonds 
     are retained.
     Extension of modified QZAB authority to school construction
       The conference agreement extends authority to issue QZABs, 
     with modifications, to public school construction. The 
     agreement authorizes issuance of up to $5 billion per year of 
     school construction QZABs in 2001, 2002, and 2003. The $5 
     billion of annual authority will be allocated to the States 
     (including the District of Columbia and U.S. possessions) by 
     the Treasury Department on the following basis: 50 percent of 
     the aggregate annual amount is allocated to the States based 
     on population and 50 percent is allocated based on the 
     portion of the State's population that lives in poverty. 
     These allocations are to be based on the most recently 
     available Census Bureau data. The State allocations are 
     subject to a ``small State floor'' of $25 million per State.
       Unissued tax-credit bond authority may be carried forward 
     for up to two years. As is true under the current QZAB 
     allocation rules, bond authority is treated as allocated on a 
     ``FIFO'' basis.
       Subject to a special rule for certain larger school 
     districts, Governors are granted interim authority to 
     allocate their State's authorized school construction QZAB 
     issuance among school districts in the State unless State 
     legislatures prescribe different allocation rules. For larger 
     local school districts, defined as districts having school 
     age populations in excess of 40,000, the conference agreement 
     provides a minimum allocation (which cannot be overridden by 
     State action)

[[Page H10994]]

     in an amount equal to the percentage of the State's total 
     population that resides in the school district. The term 
     ``school age population'' is defined as children ages five 
     through seventeen.
       In addition to the $5 billion general aggregate annual bond 
     authority, the conference agreement authorizes up to $200 
     million of school construction QZABs to be issued to finance 
     public schools operated by or for the benefit of Indian 
     tribes. This $200 million of additional authority is a one-
     time authorization which may be allocated by the Treasury 
     Department among Indian tribes at any time during the five-
     year period when school construction QZABs and present-law 
     QZABs may be issued. Both the allocation authority and the 
     authority to issue these bonds expires after December 31, 
     2005.
       School construction is defined as capital expenditures for 
     new construction, renovation, or repair or public schools 
     (real property of a character subject to the allowance for 
     depreciation), including charter schools, and the acquisition 
     of functionally related and subordinate land. Unlike present-
     law QZABs, contributions by private businesses are optional, 
     but not required, for schools receiving school construction 
     QZAB financing. Additionally, the school construction QZABs 
     are not limited to schools within an empowerment zone or 
     enterprise community, or to schools satisfying the free or 
     reduced-cost lunch criteria.
     Rules applicable to QZABs issued after December 31, 2000 and 
         to school construction QZABs
       The following administrative rules apply to QZABs issued 
     after December 31, 2000, and to the new modified QZABs for 
     school construction:
       (1) The maximum term of the bonds is 15 years.
       (2) Information reporting requirements similar to the 
     requirements that apply under present law to tax-exempt bonds 
     (sec. 149(e)) are extended to these bonds.
       (3) Eligible recipients of the tax credits are expanded to 
     include all C corporations (but not S corporations or 
     individuals).
       (4) Credits accrue to holders on a quarterly basis (rather 
     than annually as under the present-law QZAB program).
       (5) Credit rates are set by reference to the daily 
     corporate rate index established by the Treasury Department, 
     and the credit rate for each bond issue is set as of the day 
     before the date the bonds are issued (i.e., sold).
       (6) As under the present-law QZAB program, credits are 
     includible in the bondholder's gross income, but tax credits 
     may be claimed against both regular income tax and the 
     alternative minimum tax.
       (7) All property financed with tax-credit bonds must be 
     owned by a State or local government. Further, all such 
     property must be used for a qualified public school purpose 
     during the entire period that the bonds are outstanding. 
     Failure to use the property for a qualified purpose results 
     in termination of tax credits beginning on the later of (a) 
     the date of bond issuance of (b) three years before the 
     change in use occurs. Issuers are obligated to pay the 
     Federal Government an amount equal to all credits accruing 
     after the stated date (plus interest); bondholders are 
     secondarily liable for this amount.
       (8) Tax-credit bonds may not be issued to refinance any 
     outstanding debt except certain ``bridge financing,'' defined 
     as construction period financing that (a) is issued after the 
     date of the conference agreement's enactment; (b) has a term 
     not exceeding one year and (c) is issued for a project 
     identified for tax-credit bond financing before issuance of 
     the bridge financing.
       (9) Arbitrage restrictions similar to those that apply to 
     tax-exempt bonds (as modified by the conference agreement) 
     are extended to present-law QZABs and school construction 
     QZABs.
       Bond proceeds must be spent for the purpose of the 
     borrowing within 48 months after bonds are issued, with 
     intermediate spending requirements being prescribed:

------------------------------------------------------------------------
                  Within                         Must spend at least
------------------------------------------------------------------------
12 months.................................  10 percent
24 months.................................  30 percent
36 months.................................  60 percent
48 months.................................  100 percent (less present-
                                             law retainage amounts (not
                                             exceeding 5 percent) which
                                             must be spent within 60
                                             months)
------------------------------------------------------------------------

       Issuers failing to satisfy the intermediate 12, 24, or 36-
     month expenditure requirements must pay the Federal 
     Government an amount equal to the investment earnings on all 
     proceeds of the bond issue.
       Issuers failing to satisfy the 48-month or 60-month 
     expenditure requirements must redeem an amount of bonds 
     having a face amount equal to the unspent proceeds.
       A ``small governmental unit'' exception is provided to 
     these arbitrage restrictions. This exception is coordinated 
     with the present-law tax-exempt bond exception for these 
     units (as that exception is modified by the agreement) to 
     ensure that issuers do not claim double benefits.
       Rules similar to the tax-exempt bond sinking fund 
     restrictions are extended to tax- credit bonds. Under these 
     rules, all replacement funds constituting a sinking fund 
     under the tax-exempt bond rules must be invested in non-
     interest-bearing State and Local Government Series (``SLGS'') 
     obligations issued by the Treasury.
       (10) A State must allocate its school construction QZAB 
     authority in accordance with a qualified allocation plan. A 
     qualified allocation plan is to contain, among other things: 
     (a) an identification of the State's needs for public school 
     facilities, and (b) a description of how the State will make 
     allocations to address those needs, including how the State 
     will ensure the needs of both rural, suburban, and urban 
     areas will be recognized, ensure that the needs of localities 
     with the greatest needs will be met and give priority to the 
     role of charter schools in achieving State educational 
     objectives. This requirement applies to allocations of tax-
     credit bond authority made on the date that is six months 
     after the date the conference agreement is enacted.
       Effective date.--These provisions apply to bonds issued in 
     calendar years beginning after December 31, 2000.
     Increase in the amount of governmental bonds that may be 
         issued by governments qualifying for the ``small 
         governmental unit'' arbitrage rebate exception
       The additional amount of governmental bonds for public 
     schools that small governmental units may issue without being 
     subject to the arbitrage rebate requirement is increased from 
     $5 million to $10 million. Thus, these governmental units may 
     issue up to $15 million of governmental bonds in a calendar 
     year provided that at least $10 million of the bonds are used 
     to finance public school construction expenditures. This 
     exception is coordinated with the tax- credit bond exception 
     for these units to ensure that issuers do not claim double 
     benefits, i.e., both tax-credit bonds and tax-exempt bonds 
     are taken into account for purposes of this limitation.
       Effective date.--The provision applies to bonds issued in 
     calendar years beginning after December 31, 2000.
     Conform provisions relating to arbitrage treatment to reflect 
         state constitutional amendments
       The conference agreement conforms the 1984 exception to the 
     State constitutional amendments to permit its continued 
     applicability to bonds of the two university systems. 
     Limitations on the aggregate amount of bonds which may 
     benefit from the exception are not modified.
       Effective date.--The provision takes effect on January 1, 
     2001.
     Construction bond expenditure rule for governmental bonds for 
         public schools
       The present-law 24-month expenditure exception to the 
     arbitrage rebate requirement is liberalized for certain 
     public school bonds. Under the agreement, no rebate is 
     required with respect to earnings on available construction 
     proceeds of public school bonds if the proceeds are spent 
     within 48 months after the bonds are issued and the following 
     intermediate spending levels are satisfied:

------------------------------------------------------------------------
                  Within                         Must spend at least
------------------------------------------------------------------------
12 months.................................  10 percent
24 months.................................  30 percent
36 months.................................  60 percent
48 months.................................  100 percent (less present-
                                             law retainage amounts (not
                                             exceeding 5 percent) which
                                             must be spent within 60
                                             months)
------------------------------------------------------------------------

       Effective date.--The provision applies to bonds issued 
     after December 31, 2000.
     Issuance of tax-exempt private activity bonds for certain 
         public school facilities
       The private activities for which tax-exempt bonds may be 
     issued are expanded to include elementary and secondary 
     public school facilities which are owned by private, for-
     profit corporations pursuant to public-private partnership 
     agreements with a State or local educational agency. The term 
     school facility includes school buildings and functionally 
     related and subordinate land (including stadiums or other 
     athletic facilities primarily used for school events) and 
     depreciable personal property used in the school facility. 
     The school facilities for which these bonds are issued must 
     be operated by a public educational agency as part of a 
     system of public schools.
       A public-private partnership agreement is defined as an 
     arrangement pursuant to which the for-profit corporate party 
     constructs, rehabilitates, refurbishes or equips a school 
     facility. The agreement must provide that, at the end of the 
     contract term, ownership of the bond-financed property is 
     transferred to the public school agency party to the 
     agreement for no additional consideration.
       Issuance of these bonds is subject to a separate annual 
     per-State volume limit equal to the greater of $10 per 
     resident ($5 million, if greater) in lieu of the present-law 
     State private activity bond volume limits. As with the 
     present-law State private activity bond volume limits, States 
     decide how to allocate the bond authority to State and local 
     government agencies. Bond authority that is unused in the 
     year in which it arises may be carried forward for up to 
     three years for public school projects under rules similar to 
     the carryforward rules of the present-law private activity 
     bond volume limits.
       Effective date.--These provisions are effective for bonds 
     issued after December 31, 2000.

                 TITLE VI. COMMUNITY RENEWAL PROVISIONS

 A. Renewal Community Provisions (secs. 601-602 of the bill and secs. 
              51, 469, and new secs. 1400E-J of the Code)


                              Present Law

       In recent years, provisions have been added to the Internal 
     Revenue Code that target specific geographic areas for 
     special Federal income tax treatment. For example, 
     empowerment zones and enterprise communities generally 
     provide tax incentives for businesses that locate within 
     certain geographic areas designated by the Secretaries

[[Page H10995]]

     of Housing and Urban Development (``HUD'') and Agriculture.


                               House Bill

       No provision. However, H.R. 4923, as passed by the House, 
     authorizes the designation of 40 ``renewal communities'' 
     within which special tax incentives will be available. The 
     following is a description of the designation process and the 
     tax incentives that would be available within the renewal 
     communities.
     Designation process
       Designation of 40 renewal communities.--The Secretary of 
     HUD, 2 is authorized to designate up to 40 
     ``renewal communities'' from areas nominated by States and 
     local governments. At least eight of the designated 
     communities must be in rural areas. The Secretary of HUD is 
     required to publish (within four months after enactment) 
     regulations describing the nomination and selection process. 
     Designations of renewal communities are to be made within 24 
     months after the regulations are published. The designation 
     of an area as a renewal community generally will be effective 
     on July 1, 2001, and will terminate after December 31, 2009.
---------------------------------------------------------------------------
     \2\ In making the designations, the Secretary of HUD must 
     consult with the Secretaries of Agriculture, Commerce, Labor, 
     Treasury, the Director of the Office of Management and 
     Budget; and the Administrator of the Small Business 
     Administration (and the Secretary of the Interior in the case 
     of an area on an Indian reservation).
---------------------------------------------------------------------------
       Eligibility criteria.--To be designated as a renewal 
     community, a nominated area must meet the following criteria: 
     (1) each census tract must have a poverty rate of at least 20 
     percent; 3 (2) in the case of an urban area, at 
     least 70 percent of the households have incomes below 80 
     percent of the median income of households within the local 
     government jurisdiction; (3) the unemployment rate is at 
     least 1.5 times the national unemployment rate; and (4) the 
     area is one of pervasive poverty, unemployment, and general 
     distress. Those areas with the highest average ranking of 
     eligibility factors (1), (2), and (3) above would be 
     designated as renewal communities. A nominated area within 
     the District of Columbia becomes a renewal community (without 
     regard to its ranking of eligibility factors) provided that 
     it satisfies the area and eligibility requirements and the 
     required State and local commitments described below. 
     4 The Secretary of HUD shall take into account in 
     selecting areas for designation the extent to which such 
     areas have a high incidence of crime, as well as whether the 
     area has census tracts identified in the May 12, 1998, report 
     of the General Accounting Office regarding the identification 
     of economically distressed areas.
---------------------------------------------------------------------------
     \3\  Determined using 1990 census data.
     \4\  The designation of a nominated area within the District 
     of Columbia as a renewal community becomes effective on 
     January 1, 2003 (upon the expiration of the designation of 
     the District of Columbia Enterprise Zone).
---------------------------------------------------------------------------
       There are no geographic size limitations placed on renewal 
     communities. Instead, the boundary of a renewal community 
     must be continuous. In addition, the renewal community must 
     have a minimum population of 4,000 if the community is 
     located within a metropolitan statistical area (at least 
     1,000 in all other cases), and a maximum population of not 
     more than 200,000. The population limitations do not apply to 
     any renewal community that is entirely within an Indian 
     reservation.
       Required State and local commitments.--In order for an area 
     to be designated as a renewal community, State and local 
     governments are required to submit a written course of action 
     in which the State and local governments promise to take at 
     least four of the following governmental actions within the 
     nominated area: (1) a reduction of tax rates or fees; (2) an 
     increase in the level of efficiency of local services; (3) 
     crime reduction strategies; (4) actions to remove or 
     streamline governmental requirements; (5) involvement by 
     private entities and community groups, such as to provide 
     jobs and job training and financial assistance; and (6) the 
     gift (or sale at below fair market value) of surplus realty 
     by the State or local government to community organizations 
     or private companies.
       In addition, the nominating State and local governments 
     must promise to promote economic growth in the nominated area 
     by repealing or not enforcing four of the following: (1) 
     licensing requirements for occupations that do not ordinarily 
     require a professional degree; (2) zoning restrictions on 
     home-based businesses that do not create a public nuisance; 
     (3) permit requirements for street vendors who do not create 
     a public nuisance; (4) zoning or other restrictions that 
     impede the formation of schools or child care centers; and 
     (5) franchises or other restrictions on competition for 
     businesses providing public services, including but not 
     limited to taxicabs, jitneys, cable television, or trash 
     hauling, unless such regulations are necessary for and well-
     tailored to the protection of health and safety.
       Empowerment zones and enterprise communities seeking 
     designation as renewal communities.--An empowerment zone or 
     enterprise community can apply for designation as a renewal 
     community. If a renewal community designation is granted, 
     then an area's designation as an empowerment zone or 
     enterprise community ceases as of the date the area's 
     designation as a renewal community takes effect.
     Tax incentives for renewal communities
       Under H.R. 4923, the following tax incentives are available 
     during the period beginning July 1, 2001, and ending December 
     31, 2009.
       Zero-percent capital gain rate.--H.R. 4923 provides a zero-
     percent capital gains rate for gain from the sale of a 
     qualified community asset acquired after June 30, 2001, and 
     before January 1, 2010, and held for more than five years. A 
     ``qualified community asset'' includes: (1) qualified 
     community stock (meaning original-issue stock purchased for 
     cash in a renewal community business); (2) a qualified 
     community partnership interest (meaning a partnership 
     interest acquired for cash in a renewal community business); 
     and (3) qualified community business property (meaning 
     tangible property originally used in a renewal community 
     business by the taxpayer) that is purchased or substantially 
     improved after June 30, 2001.
       A ``renewal community business'' is similar to the present-
     law definition of an enterprise zone business.5 
     Property will continue to be a qualified community asset if 
     sold (or otherwise transferred) to a subsequent purchaser, 
     provided that the property continues to represent an interest 
     in (or tangible property used in) a renewal community 
     business. The termination of an area's status as a renewal 
     community will not affect whether property is a qualified 
     community asset, but any gain attributable to the period 
     before July 1, 2001, or after December 31, 2014, will not be 
     eligible for the exclusion.
---------------------------------------------------------------------------
     \5\ An ``enterprise zone business'' is defined in section 
     1397B and is described in connection with the expansion of 
     the empowerment zone benefits.
---------------------------------------------------------------------------
       Renewal community employment credit.-- Under H.R. 4923, a 
     15-percent wage credit is available to employers for the 
     first $10,000 of qualified wages paid to each employee who 
     (1) is a resident of the renewal community, and (2) performs 
     substantially all employment services within the renewal 
     community in a trade or business of the employer. The wage 
     credit rate applies to qualifying wages paid after June 30, 
     2001, and before January 1, 2010.
       Wages that qualify for the credit are wages that are 
     considered ``qualified zone wages'' for purposes of the 
     empowerment zone wage credit (including coordination with the 
     Work Opportunity Tax Credit). In general, any taxable 
     business carrying out activities in the renewal community may 
     claim the wage credit.
       Commercial revitalization deduction.--H.R. 4923 allows each 
     State to allocate up to $12 million of ``commercial 
     revitalization expenditures'' to each renewal community 
     located within the State for each calendar year after 2001 
     and before 2010 ($6 million for the period of July 1, 2001 
     through December 31, 2001). The appropriate State agency will 
     make the allocations pursuant to a qualified allocation plan.
       A ``commercial revitalization expenditure'' means the cost 
     of a new building or the cost of substantially rehabilitating 
     an existing building. The building must be used for 
     commercial purposes and be located in a renewal community. In 
     the case of the rehabilitation of an existing building, the 
     cost of acquiring the building will be treated as qualifying 
     expenditures only to the extent that such costs do not exceed 
     30 percent of the other rehabilitation expenditures. The 
     qualifying expenditures for any building cannot exceed $10 
     million.
       A taxpayer can elect either to (a) deduct one-half of the 
     commercial revitalization expenditures for the taxable year 
     the building is placed in service or (b) amortize all the 
     expenditures ratably over the 120-month period beginning with 
     the month the building is placed in service. No depreciation 
     is allowed for amounts deducted under this provision. The 
     adjusted basis is reduced by the amount of the commercial 
     revitalization deduction, and the deduction is treated as a 
     depreciation deduction in applying the depreciation recapture 
     rules (e.g., sec. 1250).
       The commercial revitalization deduction is treated in the 
     same manner as the low-income housing credit in applying the 
     passive loss rules (sec. 469). Thus, up to $25,000 of 
     deductions (together with the other deductions and credits 
     not subject to the passive loss limitation by reason of 
     section 469(i)) are allowed to an individual taxpayer 
     regardless of the taxpayer's adjusted gross income. The 
     commercial revitalization deduction is allowed in computing a 
     taxpayer's alternative minimum taxable income.
       Additional section 179 expensing.--Under H.R. 4923, a 
     renewal community business is allowed an additional $35,000 
     of section 179 expensing for qualified renewal property 
     placed in service after June 30, 2001, and before January 1, 
     2010. The section 179 expensing allowed to a taxpayer is 
     phased out by the amount by which 50 percent of the cost of 
     qualified renewal property placed in service during the year 
     by the taxpayer exceeds $200,000. The term ``qualified 
     renewal property'' is similar to the definition of 
     ``qualified zone property'' used in connection with 
     empowerment zones.
       Expensing of environmental remediation costs 
     (``brownfields'').--Under H.R. 4923, a renewal community is 
     treated as a ``targeted area'' under section 198 (which 
     permits the expensing of environmental remediation costs). 
     Thus, taxpayers can elect to treat certain environmental 
     remediation expenditures that otherwise would be capitalized 
     as deductible in the year paid or incurred. This provision 
     applies to expenditures incurred after June 30, 2001, and 
     before January 1, 2010.
       Extension of work opportunity tax credit (``WOTC'').--H.R. 
     4923 expands the high-risk

[[Page H10996]]

     youth and qualified summer youth categories in the WOTC to 
     include qualified individuals who live in a renewal 
     community.
       Effective date.--Renewal communities must be designated 
     within 24 months after publication of regulations by HUD. The 
     tax benefits available in renewal communities are effective 
     for the period beginning July 1, 2001, and ending December 
     31, 2009.


                            senate amendment

       No provision. However, S. 3152 authorizes the Secretaries 
     of HUD and Agriculture to designate up to 30 renewal zones 
     from areas nominated by States and local governments. At 
     least six of the designated renewal zones must be in rural 
     areas. The Secretary of HUD is required to publish (within 
     four months after enactment) regulations describing the 
     nomination and selection process. Designations of renewal 
     zones must be made before January 1, 2002, and the 
     designation are effective for the period beginning on January 
     1, 2002 through December 31, 2009.
       The eligibility criteria (as well as the population and 
     geographic limitations) are similar to those for renewal 
     communities in the House bill, except that S. 3152 provides 
     that any State without any empowerment zone would be given 
     priority in the designation process. Also, the 
     designations of renewal zones must result in (after taking 
     into account existing empowerment zones) each State having 
     at least one zone designation (empowerment or renewal 
     zone). In addition, S. 3152 provides that, in lieu of the 
     poverty, income, and unemployment criteria, outmigration 
     may be taken into account in the designation of one rural 
     renewal zone. Under a separate provision in S. 3152, the 
     designation of the District of Columbia Enterprise Zone 
     would be extended through December 31, 2006.
       In order for an area to be designated as a renewal zone, 
     State and local governments are required to submit a written 
     course of action in which the State and local governments 
     promise to take at least four of the governmental actions 
     described in H.R. 4923. However, S. 3152 does not contain any 
     of the economic growth provision requirements described in 
     connection with renewal communities.
       Tax incentives for renewal zones.--Under S. 3152, 
     businesses in renewal zones would be eligible for the 
     following tax incentives during the period beginning January 
     1, 2002 and ending December 31, 2009: (1) a zero-percent 
     capital gains rate for qualifying assets limited to an 
     aggregate amount not to exceed $25 million of gain per 
     taxpayer;6 (2) a 15-percent wage credit for the 
     first $15,000 of qualifying wages; (3) $35,000 in additional 
     179 expensing for qualifying property; (4) and the enhanced 
     tax-exempt bond rules that currently apply to businesses in 
     the Round II empowerment zones.
---------------------------------------------------------------------------
     \6\ Any gain attributable to the period before January 1, 
     2002, or after December 31, 2014, would not be eligible for 
     the zero-percent capital gains rate.
---------------------------------------------------------------------------
       GAO report.--The General Accounting Office will audit and 
     report to Congress every three years (beginning on January 
     31, 2004) on the renewal zone program and its effect on 
     poverty, unemployment, and economic growth within the 
     designated renewal zones.
       Effective date.--The 30 new renewal zones must be 
     designated by January 1, 2002, and the resulting tax benefits 
     are available for the period beginning January 1, 2002, and 
     ending December 31, 2009.


                          conference agreement

       The conference agreement follows the provisions of H.R. 
     4923 with certain modifications to the designation process 
     for renewal communities. The conference agreement authorizes 
     the designation of 40 renewal communities, of which at least 
     12 must be in rural areas. Of the 12 rural renewal 
     communities, one shall be an area within Mississippi, 
     designated by the State of Mississippi, that includes at 
     least one census tract within Madison County, Mississippi.
       The tax incentives are the same as those described in H.R. 
     4923--i.e., (1) a zero-percent capital gains rate for capital 
     gain from the sale of qualifying assets held for more than 
     five years; (2) a 15 percent wage credit to employers for the 
     first $10,000 of qualified wages paid to qualifying 
     employees; (3) a commercial revitalization expenditure; (4) 
     an additional $35,000 of section 179 expensing for qualified 
     renewal property; and (5) an expansion of the Work 
     Opportunity Tax Credit with respect to qualified individuals 
     who live in a renewal community.7 The 40 renewal 
     communities must be designated by January 1, 2002, and the 
     resulting tax benefits are available for the period beginning 
     January 1, 2002, and ending December 31, 2009.8
---------------------------------------------------------------------------
     \7\ Under the conference agreement, renewal communities are 
     not ``targeted areas'' for purposes of permitting expensing 
     of certain environmental remediation costs. Another provision 
     described below extends the brownfields provision for two 
     years and eliminates the targeted area requirement.
     \8\ If a renewal community designation is terminated prior to 
     December 31, 2009, the tax incentives would cease to be 
     available as of the termination date.
---------------------------------------------------------------------------
       The conference agreement provides that, with respect to the 
     first 20 designations of nominated areas as renewal 
     communities, preference will be given to nominated areas that 
     are enterprise communities and empowerment zones under 
     present law that otherwise meet the requirements for 
     designation as a renewal community.
       The conference agreement includes the priority designation 
     with respect to the District of Columbia Enterprise Zone (as 
     contained in H.R. 4923). The conference agreement also 
     includes the provision from S. 3152 that, in lieu of the 
     poverty, income, and unemployment criteria, outmigration may 
     be taken into account in the designation of one rural renewal 
     community.
       The General Accounting Office will audit and report to 
     Congress on January 31, 2004, and again in 2007 and 2010, on 
     the renewal community program and its effect on poverty, 
     unemployment, and economic growth within the designated 
     renewal communities.
       Effective date.--The 40 renewal communities must be 
     designated by January 1, 2002, and the resulting tax benefits 
     will be available for the period beginning January 1, 2002, 
     and ending December 31, 2009.

                   B. Empowerment Zone Tax Incentives

     1. Extension and expansion of empowerment zones (secs. 611-
         615 of the bill and secs. 1391, 1394, 1396, and 1397A of 
         the Code)


                              present law

     Round I empowerment zones
       The Omnibus Budget Reconciliation Act of 1993 (``OBRA 
     1993'') authorized the designation of nine empowerment zones 
     (``Round I empowerment zones'') to provide tax incentives for 
     businesses to locate within targeted areas designated by the 
     Secretaries of HUD and Agriculture. The Taxpayer Relief Act 
     of 1997 (``1997 Act'') authorized the designation of two 
     additional Round I urban empowerment zones.
       Businesses in the 11 Round I empowerment zones qualify for 
     the following tax incentives: (1) a 20-percent wage credit 
     for the first $15,000 of wages paid to a zone resident who 
     works in the empowerment zone,9 (2) an additional 
     $20,000 of section 179 expensing for qualifying zone 
     property, and (3) tax-exempt financing for certain qualifying 
     zone facilities.10 The tax incentives with respect 
     to the empowerment zones designated by OBRA 1993 generally 
     are available during the 10-year period of 1995 through 2004. 
     The tax incentives with respect to the two additional Round I 
     empowerment zones generally are available during the 10-year 
     period of 2000 through 2009.11
---------------------------------------------------------------------------
     \9\ For wages paid in calendar years during the period 1994 
     through 2001, the credit rate is 20 percent. The credit rate 
     is reduced to 15 percent for calendar year 2002, 10 percent 
     for calendar year 2003, and 5 percent for calendar year 2004. 
     No wage credit is available after 2004 in the original nine 
     empowerment zones.
     \10\ For purposes of these tax incentives, a qualifying 
     business does not include a trade or business consisting 
     predominantly of the development or holding of intangibles 
     for sale or license (sec. 1397B(d)(4)). While the provision 
     does not modify the definition of a qualifying business, the 
     sponsors of the legislation intend to review this issue.
     \11\ Except for the wage credit, which is reduced to 15 
     percent for calendar year 2005, and then reduced by five 
     percentage points in each year in 2006 and 2007, with no wage 
     credit available after 2007.
---------------------------------------------------------------------------
     Round II empowerment zones
       The 1997 Act also authorized the designation of 20 
     additional empowerment zones (``Round II empowerment 
     zones''), of which 15 are located in urban areas and five are 
     located in rural areas. Businesses in the Round II 
     empowerment zones are not eligible for the wage credit, but 
     are eligible to receive up to $20,000 of additional section 
     179 expensing. Businesses in the Round II empowerment zones 
     also are eligible for more generous tax-exempt financing 
     benefits than those available in the Round I empowerment 
     zones. Specifically, the tax-exempt financing benefits for 
     the Round II empowerment zones are not subject to the 
     State private activity bond volume caps (but are subject 
     to separate per-zone volume limitations), and the per-
     business size limitations that apply to the Round I 
     empowerment zones and enterprise communities (i.e., $3 
     million for each qualified enterprise zone business with a 
     maximum of $20 million for each principal user for all 
     zones and communities) do not apply to qualifying bonds 
     issued for Round II empowerment zones. The tax incentives 
     with respect to the Round II empowerment zones generally 
     are available during the 10-year period of 1999 through 
     2008.


                               house bill

       No provision. However, as described in greater detail 
     below, H.R. 4923 conforms and enhances the tax incentives for 
     the Round I and Round II empowerment zones and extends their 
     designations through December 31, 2009. H.R. 4923 also 
     authorizes the designation of nine new empowerment zones 
     (``Round III empowerment zones'').
     Extension of tax incentives for Round I and Round II 
         empowerment zones
       The designation of empowerment zone status for Round I and 
     II empowerment zones (other than the District of Columbia 
     Enterprise Zone) 12 is extended through December 
     31, 2009. In addition, the 20-percent wage credit is made 
     available in all Round I and II empowerment zones for 
     qualifying wages paid or incurred after December 31, 2001. 
     The credit rate remains at 20 percent (rather than being 
     phased down) through December 31, 2009, in Round I and Round 
     II empowerment zones.
---------------------------------------------------------------------------
     \12\ As previously discussed, under H.R. 4923, the District 
     of Columbia Enterprise Zone is given a priority designation 
     as a renewal community effective January 1, 2003.
---------------------------------------------------------------------------
       In addition, $35,000 (rather than $20,000) of additional 
     section 179 expensing is available for qualified zone 
     property placed in service in taxable years beginning after 
     December 31, 2001, by a qualified business in any of the

[[Page H10997]]

     empowerment zones.13 Businesses in the D.C. 
     Enterprise Zone are entitled to the additional section 179 
     expensing until the termination of the D.C. zone 
     designation.14 The bill also extends an 
     empowerment zone's status as a ``targeted area'' under 
     section 198 (thus permitting expensing of environmental 
     remediation costs). The bill applies to expenses incurred 
     after December 31, 2001, and before January 1, 2010.
---------------------------------------------------------------------------
     \13\ The additional $35,000 of section 179 expensing is 
     available throughout all areas that are part of a designated 
     empowerment zone, including the non-contiguous ``developable 
     sites'' that were allowed to be part of the designated Round 
     II empowerment zones under the 1997 Act.
     \14\ The D.C. Enterprise Zone is scheduled to terminate on 
     December 31, 2002.
---------------------------------------------------------------------------
       Businesses located in Round I empowerment zones (other than 
     the D.C. Enterprise Zone) 15 also are eligible for 
     the more generous tax-exempt bond rules that apply under 
     present law to businesses in the Round II empowerment zones 
     (sec. 1394(f)). The bill applies to tax-exempt bonds issued 
     after December 31, 2001. Bonds that have been issued by 
     businesses in Round I zones before January 1, 2002, are not 
     taken into account in applying the limitations on the amount 
     of new empowerment zone facility bonds that can be issued 
     under the bill.
---------------------------------------------------------------------------
     \15\ The present-law rules of sections 1394 and 1400A 
     continue to apply with respect to the D.C. Enterprise Zone 
     through its scheduled expiration of December 31, 2002.
---------------------------------------------------------------------------
     Nine new empowerment zones
       The Secretaries of HUD and Agriculture are authorized to 
     designate nine additional empowerment zones (``Round III 
     empowerment zones''). Seven of the Round III empowerment 
     zones will be located in urban areas, and two will be located 
     in rural areas.
       The eligibility and selection criteria for the Round III 
     empowerment zones are the same as the criteria that applied 
     to the Round II empowerment zones. The Round III empowerment 
     zones must be designated by January 1, 2002, and the tax 
     incentives with respect to the Round III empowerment zones 
     generally are available during the period beginning on 
     January 1, 2002, and ending on December 31, 2009.
       Businesses in the Round III empowerment zones are eligible 
     for the same tax incentives that, under the bill, are 
     available to Round I and Round II empowerment zones (i.e., a 
     20-percent wage credit, an additional $35,000 of section 179 
     expensing, and the enhanced tax-exempt financing benefits 
     presently available to Round II empowerment zones). The Round 
     III empowerment zones also are considered ``targeted areas'' 
     for purposes of permitting expensing of certain environmental 
     remediation costs under section 198.
     Effective date
       The extension of the existing empowerment zone designations 
     is effective after the date of enactment. The extension of 
     the tax benefits to existing empowerment zones (i.e., the 
     expanded wage credit, the additional section 179 expensing, 
     the brownfields designation, and the more generous tax-exempt 
     bond rules) generally is effective after December 31, 2001.
       The new Round III empowerment zones must be designated by 
     January 1, 2002, and the tax incentives with respect to the 
     Round III empowerment zones generally are available during 
     the period beginning on January 1, 2002, and ending on 
     December 31, 2009.
     Senate Amendment
       No provision. However, S. 3152 contains a provision that 
     conforms and enhances incentives for existing empowerment 
     zones. Specifically, the provision extends the designation of 
     empowerment zone status for Round I and II empowerment zones 
     through December 31, 2009. In addition, a 15-percent wage 
     credit is made available in all Round I and II empowerment 
     zones, effective in 2002 (except in the case of the two 
     additional Round I empowerment zones added by the 1997 Act, 
     for which the 15-percent wage credit takes effect in 2005 as 
     scheduled under present law). For all the empowerment zones, 
     the 15-percent wage credit expires on December 31, 2009.
       In addition, $35,000 (rather than $20,000) of additional 
     section 179 expensing is available for qualified zone 
     property placed in service in taxable years beginning after 
     December 31, 2001, by a qualified business in any of the 
     empowerment zones.16
---------------------------------------------------------------------------
     \16\  The additional $35,000 of section 179 expensing is 
     available throughout all areas that are part of a designated 
     empowerment zone, including the non-contiguous ``developable 
     sites'' that were allowed to be part of the designated Round 
     II empowerment zones under the 1997 Act.
---------------------------------------------------------------------------
       Under S. 3152, businesses located in Round I empowerment 
     zones are eligible for the more generous tax-exempt bond 
     rules that apply under present law to businesses in the Round 
     II empowerment zones (sec. 1394(f)). The proposal applies to 
     tax-exempt bonds issued after December 31, 2001. Bonds that 
     have been issued by businesses in Round I zones before 
     January 1, 2002, are not taken into account in applying the 
     limitations on the amount of new empowerment zone facility 
     bonds that can be issued under the provision.
       Businesses located in any empowerment zone also qualify for 
     a zero-percent capital gains rate for gain from the sale of a 
     qualifying zone assets acquired after date of enactment and 
     before January 1, 2010, and held for more than five years. 
     Assets that qualify for this incentive are similar to the 
     types of assets that qualify for the present-law zero percent 
     capital gains rate for qualifying D.C. Zone assets. The zero-
     percent capital gains rate is limited to an aggregate amount 
     not to exceed $25 million of gain per taxpayer. Gain 
     attributable to the period before the date of enactment or 
     after December 31, 2014, is not eligible for the zero-percent 
     rate.
       Effective date.--The extension of the existing empowerment 
     zone designations is effective after the date of enactment. 
     The additional section 179 expensing and the more generous 
     tax-exempt bond rules for the existing empowerment zones is 
     effective after December 31, 2001. The zero-percent capital 
     gains rate applies to qualifying property purchased after the 
     date of enactment. The 15-percent wage credit generally is 
     effective for qualifying wages paid after December 31, 2001. 
     With respect to the two additional Round I empowerment zones, 
     however, the wage credit is effective for qualifying wages 
     paid after December 31, 2004.


                          conference agreement

       The conference agreement follows the provisions in H.R. 
     4923 with the following modifications. The conference 
     agreement does not extend the empowerment zones' status as a 
     ``targeted area'' for purposes of permitting expensing of 
     certain environmental remediation costs under section 
     198.17 In addition, the conference agreement 
     provides that the General Accounting Office will audit and 
     report to Congress on January 31, 2004, and again in 2007 and 
     2010, on the empowerment zone and enterprise community 
     program and its effect on poverty, unemployment, and economic 
     growth within the designated areas.
---------------------------------------------------------------------------
     \17\ Another provision described below extends the 
     brownfields provision for two years and eliminates the 
     targeted area requirement.
---------------------------------------------------------------------------
     2. Rollover of gain from the sale of qualified empowerment 
         zone investments (sec. 616 of the bill and new sec. 1397B 
         of the Code)


                              present law

       In general, gain or loss is recognized on any sale, 
     exchange, or other disposition of property. A taxpayer (other 
     than a corporation) may elect to roll over without payment of 
     tax any capital gain realized upon the sale of qualified 
     small business stock held for more than six months where the 
     taxpayer uses the proceeds to purchase other qualified small 
     business stock within 60 days of the sale of the original 
     stock.


                               house bill

       No provision. However, under H.R. 4923, a taxpayer can 
     elect to roll over capital gain from the sale or exchange of 
     any qualified empowerment zone asset purchased after the date 
     of enactment and held for more than one year (``original zone 
     asset'') where the taxpayer uses the proceeds to purchase 
     other qualifying empowerment zone assets in the same zone 
     (``replacement zone asset'') within 60 days of the sale of 
     the original zone asset. The holding period of the 
     replacement zone asset includes the holding period of the 
     original zone asset, except that the replacement asset must 
     actually be held for more than one year to qualify for 
     another tax-free rollover. The basis of the replacement zone 
     asset is reduced by the gain not recognized on the rollover. 
     However, if the replacement zone asset is qualified small 
     business stock (as defined in sec. 1202), the exclusion under 
     section 1202 would not apply to gain accrued on the original 
     zone asset.18 A ``qualified empowerment zone 
     asset'' means an asset that would be a qualified community 
     asset if the empowerment zone were a renewal community (and 
     the asset is acquired after the date of enactment of the 
     bill). Assets in the D.C. Enterprise Zone are not eligible 
     for the tax-free rollover treatment.19
---------------------------------------------------------------------------
     \18\ See section 1045 for rollover of qualified small 
     business stock to other small business stock.
     \19\ However, a qualifying D.C. Zone asset held for more than 
     five years is eligible for a 100-percent capital gains 
     exclusion (sec. 1400B).
---------------------------------------------------------------------------
       Effective date.--The provision is effective for qualifying 
     assets purchased after the date of enactment.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement follows the provision in H.R. 
     4923.
     3. Increased exclusion of gain from the sale of qualifying 
         empowerment zone stock (sec. 617 of the bill and sec. 
         1202 of the Code)


                              present law

       Under present law, an individual, subject to limitations, 
     may exclude 50 percent of the gain 20 from the 
     sale of qualifying small business stock held more than five 
     years (sec. 1202).
---------------------------------------------------------------------------
     \20\ The portion of the capital gain included in income is 
     subject to a maximum regular tax rate of 28 percent, and 42 
     percent of the excluded gain is a minimum tax preference.
---------------------------------------------------------------------------


                               house bill

       No provision. However, H.R. 4923 includes a provision that 
     would increase the exclusion for small business stock to 60 
     percent for stock purchased after the date of enactment in a 
     corporation that is a qualified business entity and that is 
     held for more than five years. A ``qualified business 
     entity'' means a corporation that satisfies the requirements 
     of a qualifying business under the empowerment zone rules 
     during substantially all the taxpayer's holding period.
       Effective date.--The provision is effective for qualified 
     stock purchased after the date of enactment.

[[Page H10998]]

                            senate amendment

       No provision.


                          conference agreement

       The conference agreement follows the provision in H.R. 
     4923.

C. New Markets Tax Credit (sec. 621 of the bill and new sec. 45D of the 
                                 Code)


                              present law

       Some tax incentives are available to taxpayers making 
     investments and loans in low-income communities. For example, 
     tax incentives are available to taxpayers that invest in 
     specialized small business investment companies licensed by 
     the Small Business Administration to make loans to, or equity 
     investments in, small businesses owned by persons who are 
     socially or economically disadvantaged.


                               house bill

       No provision. However, H.R. 4923 includes a provision that 
     creates a new tax credit for qualified equity investments 
     made to acquire stock in a selected community development 
     entity (``CDE''). The maximum annual amount of qualifying 
     equity investments is capped as follows:

------------------------------------------------------------------------
           Calendar Year            Maximum qualifying equity investment
------------------------------------------------------------------------
2001..............................  $1.0 billion
2002-2003.........................  1.5 billion per year
2004-2005.........................  2.0 billion per year
2006-2007.........................  3.5 billion per year
------------------------------------------------------------------------

       The amount of the new tax credit to the investor (either 
     the original purchaser or a subsequent holder) is (1) a five-
     percent credit for the year in which the equity interest is 
     purchased from the CDE and the first two anniversary dates 
     after the interest is purchased from the CDE, and (2) a six 
     percent credit on each anniversary date thereafter for the 
     following four years.21 The taxpayer's basis in 
     the investment is reduced by the amount of the credit (other 
     than for purposes of calculating the capital gain exclusion 
     under sections 1202, 1400B, and 1400F). The credit is subject 
     to the general business credit rules.
---------------------------------------------------------------------------
     \21\ Thus, a credit would be available on the date on which 
     the investment is made and for each of the six anniversary 
     dates thereafter.
---------------------------------------------------------------------------
       A CDE is any domestic corporation or partnership (1) whose 
     primary mission is serving or providing investment capital 
     for low-income communities or low-income persons, (2) that 
     maintains accountability to residents of low-income 
     communities through representation on governing or advisory 
     boards, or otherwise and (3) is certified by the Treasury 
     Department as an eligible CDE.22 No later than 60 
     days after enactment, the Treasury Department shall issue 
     regulations that specify objective criteria to be used by the 
     Treasury to allocate the credits among eligible CDEs. In 
     allocating the credits, the Treasury Department will give 
     priority to entities with records of having successfully 
     provided capital or technical assistance to disadvantaged 
     businesses or communities.
---------------------------------------------------------------------------
     \22\ A specialized small business investment company and a 
     community development financial institution are treated as 
     satisfying the requirements for a CDE.
---------------------------------------------------------------------------
       If a CDE fails to sell equity interests to investors up to 
     the amount authorized within five years of the authorization, 
     then the remaining authorization is canceled. The Treasury 
     Department can authorize another CDE to issue equity 
     interests for the unused portion. No authorization can be 
     made after 2014.
       A ``qualified equity investment'' is defined as stock or a 
     similar equity interest acquired directly from a CDE in 
     exchange for cash. Substantially all of the investment 
     proceeds must be used by the CDE to make ``qualified low-
     income community investments,'' meaning equity investments 
     in, or loans to, qualified active businesses located in low-
     income communities, certain financial counseling and other 
     services specified in regulations to businesses and residents 
     in low-income communities.23
---------------------------------------------------------------------------
     \23\ If at least 85 percent of the aggregate gross assets of 
     the CDE are invested (directly or indirectly) in equity 
     interests in, or loans to, qualified active businesses 
     located in low-income communities, then there would be no 
     need to trace the use of the proceeds from the particular 
     stock (or other equity ownership) issuance with respect to 
     which the credit is claimed.
---------------------------------------------------------------------------
       The stock or equity interest cannot be redeemed (or 
     otherwise cashed out) by the CDE for at least seven years. If 
     an entity fails to be a CDE during the seven-year period 
     following the taxpayer's investment, or if the equity 
     interest is redeemed by the issuing CDE during that seven-
     year period, then any credits claimed with respect to the 
     equity interest are recaptured (with interest) and no further 
     credits are allowed.
       A ``low-income community'' is defined as census tracts with 
     either (1) poverty rates of at least 20 percent (based on the 
     most recent census data), or (2) median family income which 
     does not exceed 80 percent of the greater of metropolitan 
     area income or statewide median family income (for a non-
     metropolitan census tract, 80 percent of non-metropolitan 
     statewide median family income).
       A ``qualified active business'' is defined as a business 
     which satisfies the following requirements: (1) at least 50 
     percent of the total gross income of the business is derived 
     from the active conduct of trade or business activities in 
     low-income communities; (2) a substantial portion of the use 
     of the tangible property of such business is used within low-
     income communities; (3) a substantial portion of the services 
     performed for such business by its employees is performed in 
     low-income communities; and (4) less than 5 percent of the 
     average aggregate of unadjusted bases of the property of such 
     business is attributable to certain financial property or to 
     collectibles (other than collectibles held for sale to 
     customers). There is no requirement that employees of the 
     business be residents of the low-income community.
       Rental of improved commercial real estate located in a low-
     income community is a qualified active business, regardless 
     of the characteristics of the commercial tenants of the 
     property. The purchase and holding of unimproved real estate 
     is not a qualified active business. In addition, a qualified 
     active business does not include (a) any business consisting 
     predominantly of the development or holding of intangibles 
     for sale or license; (b) operation of any facility 
     described in sec. 144(c)(6)(B); or (c) any business if a 
     significant equity interest in such business is held by a 
     person who also holds a significant equity interest in the 
     CDE. A qualified active business can include an 
     organization that is organized on a non-profit basis.
       Effective date.--The provision is effective for qualified 
     investments made after December 31, 2000.


                            Senate Amendment

       No provision. However, S. 3152 includes a provision that 
     creates a new markets tax credit that is similar to the 
     provision in H.R. 4923. Under S. 3152, the maximum annual 
     amount of qualifying equity investments is capped as follows:

------------------------------------------------------------------------
           Calendar year            Maximum qualifying equity investment
------------------------------------------------------------------------
2002..............................  $1.0 billion
2003-2006.........................  $1.5 billion per year
------------------------------------------------------------------------

       S. 3152 defines a CDE in the same manner as in H.R. 4923, 
     except that the accountability requirement is clarified to 
     provide that the CDE must maintain accountability to 
     residents of low- income communities through the 
     representation of the residents on governing or advisory 
     boards of the CDE. No later than 120 days after enactment, 
     the Treasury Department will issue guidance that specifies 
     objective criteria to be used by the Treasury to allocate the 
     credits among eligible CDEs. In allocating the credits, the 
     Treasury Department will give priority to entities with 
     records of having successfully provided capital or technical 
     assistance to disadvantaged businesses or communities, 
     24 as well as to entities that intend to invest 
     substantially all of the proceeds they receive from their 
     investors in businesses in which persons unrelated to the CDE 
     hold the majority equity interest.
---------------------------------------------------------------------------
     \24\ A record of having successfully provided capital or 
     technical assistance to disadvantaged businesses or 
     communities could be demonstrated by the past actions of the 
     CDE itself or an affiliate (e.g., in the case where a new CDE 
     is established by a nonprofit organization with a history of 
     providing assistance to disadvantaged communities).
---------------------------------------------------------------------------
       Under S. 3152, if a CDE fails to sell equity interests to 
     investors up to the amount authorized within five years of 
     the authorization, then the remaining authorization is 
     canceled. The Treasury Department can authorize another CDE 
     to issue equity interests for the unused portion. No 
     authorization can be made after 2013.
       Substantially all of the investment proceeds must be used 
     by the CDE to make ``qualified low-income community 
     investments.'' Qualified low-income community investments 
     include: (1) capital or equity investments in, or loans to, 
     qualified active businesses located in low- income 
     communities, 25 (2) certain financial counseling 
     and other services specified in regulations to businesses and 
     residents in low-income communities, (3) the purchase from 
     another CDE of any loan made by such entity that is a 
     qualified low income community investment, or (4) an equity 
     investment in, or loans to, another CDE. 26 
     Treasury Department regulations will provide guidance with 
     respect to the ``substantially all'' standard.
---------------------------------------------------------------------------
     \25\ Thus, a qualified low-income community investment may 
     include an investment in a qualifying business in which the 
     CDE (or a related party) holds a significant interest. 
     However, as previously mentioned, in allocating the credits 
     among eligible CDEs, the Treasury Department will give 
     priority to CDEs that intend to invest substantially all of 
     the proceeds they receive from their investors in businesses 
     in which persons unrelated to the CDE hold the majority of 
     the equity interest. For purposes of this provision, persons 
     are related to each other if they are described in sections 
     267(b) or 707(b)(1).
     \26\ If at least 85 percent of the aggregate gross assets of 
     the CDE are invested (directly or indirectly) in equity 
     interests in, or loans to, qualified active businesses 
     located in low-income communities, then there would be no 
     need to trace the use of the proceeds from the particular 
     stock (or other equity ownership) issuance with respect to 
     which the credit is claimed.
---------------------------------------------------------------------------
       The definition of a ``low-income community'' is the same as 
     in H.R. 4923, except that under S. 3152, the Secretary may 
     designate any area within any census tract as a ``low income 
     community'' provided that (1) the boundary of the area is 
     continuous, 27 (2) the area (if it were a census 
     tract) would satisfy the poverty rate or median income 
     requirements set forth above 28 within the 
     targeted

[[Page H10999]]

     area, and (3) an inadequate access to investment capital 
     exists in the area.
---------------------------------------------------------------------------
     \27\ It is intended that the continuous boundary that 
     delineates the portion of the census tract as a ``low-income 
     community'' should be a pre-existing boundary (such as an 
     established neighborhood, political, or geographic boundary).
     \28\ A low-income community is defined as census tracts with 
     either (1) poverty rates of at least 20 percent (based on the 
     most recent census data), or (2) median family income which 
     does not exceed 80 percent of the greater of metropolitan 
     area income or statewide median family income (for a non-
     metropolitan census tract, 80 percent of non-metropolitan 
     statewide median family income).
---------------------------------------------------------------------------
       The definition of a ``qualified active business'' is the 
     same as in H.R. 4923, except that S. 3152 clarifies that a 
     qualified active business can include an organization that is 
     organized on a non-profit basis.
       The General Accounting Office will audit and report to 
     Congress by January 31, 2004 (and again by January 31, 2007) 
     on the new markets tax credit program, including on all 
     qualified community development entities that receive an 
     allocation under the new markets tax credit.
       Effective date.--The provision is effective for qualified 
     investments made after December 31, 2001.


                          Conference Agreement

       The conference agreement follows H.R. 4923 with some 
     modifications.
       The definition of a CDE includes the clarification in S. 
     3152 regarding the accountability requirement, as well as the 
     priority allocation to CDEs with records of having 
     successfully provided capital or technical assistance to 
     disadvantaged businesses or communities, 29 as 
     well as to entities that intend to invest substantially all 
     of their investment proceeds in businesses in which persons 
     unrelated to the CDE hold the majority equity interest.
---------------------------------------------------------------------------
     \29\ A record of having successfully provided capital or 
     technical assistance to disadvantaged businesses or 
     communities could be demonstrated by the past actions of the 
     CDE itself or an affiliate (e.g., in the case where a new CDE 
     is established by a nonprofit organization with a history of 
     providing assistance to disadvantaged communities).
---------------------------------------------------------------------------
       The conference agreement adopts S. 3152's definitions of 
     ``qualified low-income community investment'' (which permits 
     investments in related businesses) and ``low-income 
     community'' (which provides discretion to designate targeted 
     population areas). In addition, the definition of a 
     ``qualified active business'' includes an organization that 
     is organized on a non-profit basis.
       Under the conference agreement, the General Accounting 
     Office will audit and report to Congress by January 31, 2004, 
     and again in 2007 and 2010, on the new markets tax credit 
     program, including on all qualified community development 
     entities that receive an allocation under the new markets tax 
     credit program.

   D. Increase the Low-Income Housing Tax Credit Cap and Make Other 
   Modifications (secs. 631-637 of the bill and sec. 42 of the Code)


                              Present Law

     In general
       The low-income housing tax credit may be claimed over a 10-
     year period for the cost of rental housing occupied by 
     tenants having incomes below specified levels. The credit 
     percentage for newly constructed or substantially 
     rehabilitated housing that is not Federally subsidized is 
     adjusted monthly by the Internal Revenue Service so that the 
     10 annual installments have a present value of 70 percent of 
     the total qualified expenditures. The credit percentage for 
     new substantially rehabilitated housing that is Federally 
     subsidized and for existing housing that is substantially 
     rehabilitated is calculated to have a present value of 30 
     percent qualified expenditures.
     Credit cap
       The aggregate credit authority provided annually to each 
     State is $1.25 per resident, except in the case of projects 
     that also receive financing with proceeds of tax-exempt bonds 
     issued subject to the private activity bond volume limit and 
     certain carry-over amounts,
     Expenditure test
       Generally, the building must be placed in service in the 
     year in which it receives an allocation to qualify for the 
     credit. An exception is provided in the case where the 
     taxpayer has expended an amount equal to 10-percent or more 
     of the taxpayer's reasonably expected basis in the building 
     by the end of the calendar year in which the allocation is 
     received and certain other requirements are met.
     Basis of building eligible for the credit
       Buildings receiving assistance under the HOME investment 
     partnerships act (``HOME'') are not eligible for the enhanced 
     credit for buildings located in high cost areas (i.e., 
     qualified census tracts and difficult development areas). 
     Under the enhanced credit, the 70-percent and 30- percent 
     credit are increased to a 91-percent and 39-percent credit, 
     respectfully.
       Eligible basis is generally limited to the portion of the 
     building used by qualified low- income tenants for 
     residential living and some common areas.
     State allocation plans
       Each State must develop a plan for allocating credits and 
     such plan must include certain allocation criteria including: 
     (1) project location; (2) housing needs characteristics; (3) 
     project characteristics; (4) sponsor characteristics; (5) 
     participation of local tax-exempts; (6) tenant populations 
     with special needs; and (7) public housing waiting lists. The 
     State allocation plan must also give preference to housing 
     projects: (1) that serve the lowest income tenants; and (2) 
     that are obligated to serve qualified tenants for the longest 
     periods.
     Credit administration
       There are no explicit requirements that housing credit 
     agencies perform a comprehensive market study of the housing 
     needs of the low-income individuals in the area to be served 
     by the project, nor that such agency conduct site visits to 
     monitor for compliance with habitability standards.
     Stacking rule
       Authority to allocate credits remains at the State (as 
     opposed to local) government level unless State law provides 
     otherwise. 30 Generally, credits may be allocated 
     only from volume authority arising during the calendar year 
     in which the building is placed in service, except in the 
     case of: (1) credits claimed on additions to qualified basis; 
     (2) credits allocated in a later year pursuant to an earlier 
     binding commitment made no later than the year in which the 
     building is placed in service; and (3) carryover allocations.
---------------------------------------------------------------------------
     \30\ For example, constitutional home rule cities in Illinois 
     are guaranteed their proportionate share of the $1.25 amount, 
     based on their population relative to that of the State as a 
     whole.
---------------------------------------------------------------------------
       Each State annually receives low-income housing credit 
     authority equal to $1.25 per State resident for allocation to 
     qualified low-income projects. 31 In addition to 
     this $1.25 per resident amount, each State's ``housing credit 
     ceiling'' includes the following amounts: (1) the unused 
     State housing credit ceiling (if any) of such State for the 
     preceding calendar year; 32 (2) the amount of the 
     State housing credit ceiling (if any) returned in the 
     calendar year; 33 and (3) the amount of the 
     national pool (if any) allocated to such State by the 
     Treasury Department.
---------------------------------------------------------------------------
     \31\ A State's population, for these purposes, is the most 
     recent estimate of the State's population released by the 
     Bureau of the Census before the beginning of the year to 
     which the limitation applies. Also, for these purposes, the 
     District of Columbia and the U.S. possessions (i.e., Puerto 
     Rico, the Virgin Islands, Guam, the Northern Marianas and 
     American Samoa) are treated as States.
     \32\ The unused State housing credit ceiling is the amount 
     (if positive) of the previous year's annual credit limitation 
     plus credit returns less the credit actually allocated in 
     that year.
     \33\ Credit returns are the sum of any amounts allocated to 
     projects within a State which fail to become a qualified low-
     income housing project within the allowable time period plus 
     any amounts allocated to a project within a State under an 
     allocation which is canceled by mutual consent of the housing 
     credit agency and the allocation recipient.
---------------------------------------------------------------------------
       The national pool consists of States' unused housing credit 
     carryovers. For each State, the unused housing credit 
     carryover for a calendar year consists of the excess (if any) 
     of the unused State housing credit ceiling for such year over 
     the excess (if any) of the aggregate housing credit dollar 
     amount allocated for such year over the sum of $1.25 per 
     resident and the credit returns for such year. The amounts 
     in the national pool are allocated only to a State which 
     allocated its entire housing credit ceiling for the 
     preceding calendar year, and requested a share in the 
     national pool not later than May 1 of the calendar year. 
     The national pool allocation to qualified States is made 
     on a pro rata basis equivalent to the fraction that a 
     State's population enjoys relative to the total population 
     of all qualified States for that year.
       The present-law stacking rule provides that a State is 
     treated as using its annual allocation of credit authority 
     ($1.25 per State resident) and any returns during the 
     calendar year followed by any unused credits carried forward 
     from the preceding year's credit ceiling and finally any 
     applicable allocations from the National pool.


                               House Bill

     Credit cap
       No provision. However, H.R. 4923 increases the $1.25 per 
     capita cap to $1.75 per capita. This increase is phased-in 
     over six years. Also, beginning in 2001 the per capita cap 
     for each State is modified so that small population State are 
     given a minimum of $2 million of annual credit cap. Therefore 
     the credit cap would be the greater of: $1.35 per capita or 
     $2 million in calendar year 2001; $1.45 per capita or $2 
     million in calendar 2002; $1.55 per capita or $2 million in 
     calendar year 2003; $1.65 per capita or $2 million in 
     calendar year 2004; $1.70 per capita or $2 million in 
     calendar year 2005; and $1.75 per capita or $2 million in 
     calendar year 2006. The $1.75 per capita credit cap and $2 
     million amount are indexed for inflation beginning in 2007.
     Expenditure test
       The provisions of H.R. 4923 allow a building which receives 
     an allocation in the second half of a calendar to qualify 
     under the 10-percent test if the taxpayer expends an amount 
     equal to 10-percent or more of the taxpayer's reasonably 
     expected basis in the building within six months of receiving 
     the allocation regardless of whether the 10-percent test is 
     met by the end of the calendar year.
     Basis of building eligible for the credit
       The provisions of H.R. 4923 make three changes to the basis 
     rules of the credit. First, the definition of qualified 
     census tracts for purposes of the enhanced credit is expanded 
     to include any census tracts with a poverty rate of 25 
     percent or more. Second, H.R. 4923 extends the credit to a 
     portion of the building used as a community service facility 
     not in excess of 10 percent of the total eligible basis in 
     the building. A community service facility is defined as any 
     facility designed to serve primarily individuals whose income 
     is 60 percent or less of area median

[[Page H11000]]

     income. Third, H.R. 4923 provides that assistance received 
     under the Native American Housing Assistance and Self-
     Determination Act of 1996 is not taken into account in 
     determining whether a building is Federally subsidized for 
     purposes of the credit. This allows such buildings to qualify 
     for something other than the 30-percent credit generally 
     applicable to Federally subsidized buildings.
     State allocation plans
       The provisions of H.R. 4923 strikes the plan criteria 
     relating to participation of local tax- exempts, replacing it 
     with two other criteria: tenant populations of individuals 
     with children and projects intended for eventual tenant 
     ownership. It also provides that the present-law criteria 
     relating to sponsor characteristics include whether the 
     project involves the use of existing housing as part of a 
     community revitalization plan. Also, H.R. 4923 adds a third 
     category of housing projects to the preferential list. That 
     third category is for projects located in qualified census 
     tracts which contribute to a concerted community 
     revitalization plan.
     Credit administration
       The provisions of H.R. 4923 require a comprehensive market 
     study of the housing needs of the low-income individuals in 
     the area to be served by the project and a written 
     explanation available to the general public for any 
     allocation not made in accordance with the established 
     priorities and selection criteria of the housing credit 
     agency. They also require site inspections by the housing 
     credit agency to monitor compliance with habitability 
     standards applicable to the project.
     Stacking rule
       The provisions of H.R. 4923 modify the stacking rule so 
     that each State would be treated as using its allocation of 
     the unused State housing credit ceiling (if any) from the 
     preceding calendar before the current year's allocation of 
     credit (including any credits returned to the State) and then 
     finally any National pool allocations.
     Effective date
       In general, H.R. 4923 is effective for calendar years 
     beginning after December 31, 2000, and buildings placed-in-
     service after such date in the case of projects that also 
     receive financing with proceeds of tax-exempt bonds subject 
     to the private activity bond volume limit which are issued 
     after such date. The increase and indexing of the credit cap 
     is effective for calendar years after December 31, 2000.


                            Senate Amendment

     Credit cap
       No provision. However, S. 3152 increases the annual State 
     credit caps from $1.25 to $1.75 per resident beginning in 
     2001. Also, beginning in 2001 the per capita cap for each 
     State is modified so that small population State are given a 
     minimum of $2 million of annual credit cap. The $1.75 per 
     capita cap and the $2 million amount are indexed for 
     inflation beginning in calendar 2002.
     Expenditure test
       No provision.
     Basis of building eligible for the credit
       The provision in S. 3152 relating to the treatment of 
     buildings receiving assistance under the Native American 
     Housing Assistance and Self-Determination Act of 1996 is the 
     same as one of the provisions in H.R. 4923. The other 
     provisions in H.R. 4923 relating to the basis of building 
     eligible for the credit are not part of S. 3152.
     State allocation plans
       No provision.
     Credit administration
       No provision.
     Stacking rule
       The provision of H.R. 4923 is included in S. 3152.
     Effective date
       The provisions are effective for calendar years beginning 
     after December 31, 2000 and buildings placed-in-service after 
     such date in the case of projects that also receive financing 
     with proceeds of tax-exempt bonds which are issued after such 
     date subject to the private activity bond volume limit.


                          Conference Agreement

     Credit cap
       The conference agreement follows the provisions of H.R. 
     4923 and S. 3152 with a modification increasing the per-
     capita low-income housing credit cap from $1.25 per capita to 
     $1.50 per capita in calendar year 2001 and to $1.75 per 
     capita in calendar year 2002. Beginning in calendar year 
     2003, the per-capita portion of the credit cap will be 
     adjusted annually for inflation. For small States, a minimum 
     annual cap of $2 million is provided for calendar years 2001 
     and 2002. Beginning in calendar year 2003, the small State 
     minimum is adjusted for inflation.
     Expenditure test
       The conference agreement follows the provision of H.R. 
     4923.
     Basis of building eligible for the credit
       The conference agreement includes all three of the changes 
     to the credit basis rules included in H.R. 4923.
     State allocation plans
       The conference agreement includes the provision of H.R. 
     4923.
     Credit administration
       The conference agreement includes the provision of H.R. 
     4923.
     Stacking rule
       The conference agreement follows the provisions of H.R. 
     4923 and the S. 3152.
     Effective date
       The provision is generally effective for calendar years 
     beginning after December 31, 2000, and buildings placed-in-
     service after such date in the case of projects that also 
     receive financing with proceeds of tax-exempt bonds subject 
     to the private activity bond volume limit which are issued 
     after such date.

 E. Accelerate Scheduled Increase in State Volume Limits on Tax-Exempt 
 Private Activity Bonds (sec. 651 of the bill and sec. 146 of the Code)


                              Present Law

       Interest on bonds issued by States and local governments is 
     excluded from income if the proceeds of the bonds are used to 
     finance activities conducted and paid for by the governmental 
     units (sec. 103). Interest on bonds issued by these 
     governmental units to finance activities carried out and paid 
     for by private persons (``private activity bonds'') is 
     taxable unless the activities are specified in the Internal 
     Revenue Code. Private activity bonds on which interest may be 
     tax-exempt include bonds for privately operated 
     transportation facilities (airports, docks and wharves, mass 
     transit, and high speed rail facilities), privately owned 
     and/or provided municipal services (water, sewer, solid waste 
     disposal, and certain electric and heating facilities), 
     economic development (small manufacturing facilities and 
     redevelopment in economically depressed areas), and certain 
     social programs (low-income rental housing, qualified 
     mortgage bonds, student loan bonds, and exempt activities of 
     charitable organizations described in sec. 501(c)(3)).
       The volume of tax-exempt private activity bonds that States 
     and local governments may issue for most of these purposes in 
     each calendar year is limited by State-wide volume limits. 
     The current annual volume limits are $50 per resident of the 
     State or $150 million if greater. The volume limits do not 
     apply to private activity bonds to finance airports, docks 
     and wharves, certain governmentally owned, but privately 
     operated solid waste disposal facilities, certain high speed 
     rail facilities, and to certain types of private activity 
     tax-exempt bonds that are subject to other limits on their 
     volume (qualified veterans' mortgage bonds and certain 
     ``new'' empowerment zone and enterprise community bonds).
       The current annual volume limits that apply to private 
     activity tax-exempt bonds increase to $75 per resident of 
     each State or $225 million, if greater, beginning in calendar 
     year 2007. The increase is, ratably phased in, beginning with 
     $55 per capita or $165 million, if greater, in calendar year 
     2003.


                               House Bill

       No provision. However, H.R. 4923 accelerates the scheduled 
     increase in the present-law annual State private activity 
     bond volume limits to $75 per resident of each State, or $225 
     million (if greater) beginning in calendar year 2007. The 
     increase is phased in as follows, beginning in calendar year 
     2001:

 
              Calendar year                         Volume limit
 
2001.....................................  $55 per resident ($165
                                            million if greater)
2002.....................................  $60 per resident ($180
                                            million if greater)
2003.....................................  $65 per resident ($195
                                            million if greater)
2004, 2005, and 2006.....................  $70 per resident ($210
                                            million if greater)
2007 and thereafter......................  $75 per resident ($225
                                            million if greater)
 

       Effective date.--The provision is effective beginning in 
     calendar year 2001 and is fully effective in calendar year 
     2007 and thereafter.


                            Senate Amendment

       No provision. However, S. 3152 increases the present-law 
     annual State private activity bond volume limits to $75 per 
     resident of each State or $225 million (if greater) beginning 
     in calendar year 2001. In addition, the $75 per resident and 
     the $225 million State limit will be indexed for inflation 
     beginning in calendar year 2002.
       Effective date.--The provisions are effective in calender 
     years beginning after December 31, 2000.


                          Conference Agreement

       The conference agreement follows the provisions of H.R. 
     4923 and S. 3152 with a modification increasing the State 
     volume limits from the greater of $50 per resident or $150 
     million to the greater of $62.50 per resident or $187.5 
     million in calendar year 2001. The volume limit will increase 
     further, to the greater of $75 per resident or $225 million 
     in calendar year 2002. Beginning in calendar year 2003, the 
     volume limit will be adjusted annually for inflation.

F. Extension and Modification to Expensing of Environmental Remediation 
         Costs (sec. 652 of the bill and sec. 198 of the Code)


                              Present Law

       Taxpayers can elect to treat certain environmental 
     remediation expenditures that would otherwise be chargeable 
     to capital account as deductible in the year paid or incurred 
     (sec. 198). The deduction applies for both regular and 
     alternative minimum tax purposes. The expenditure must be 
     incurred in connection with the abatement or control of 
     hazardous substances at a qualified contaminated site.
       A ``qualified contaminated site'' generally is any property 
     that (1) is held for use in a

[[Page H11001]]

     trade or business, for the production of income, or as 
     inventory; (2) is certified by the appropriate State 
     environmental agency to be located within a targeted area; 
     and (3) contains (or potentially contains) a hazardous 
     substance (so-called ``brownfields''). Targeted areas are 
     defined as: (1) empowerment zones and enterprise communities 
     as designated under present law; (2) sites announced before 
     February 1997, as being subject to one of the 76 
     Environmental Protection Agency (``EPA'') Brownfields Pilots; 
     (3) any population census tract with a poverty rate of 20 
     percent or more; and (4) certain industrial and commercial 
     areas that are adjacent to tracts described in (3) above. 
     However, sites that are identified on the national priorities 
     list under the Comprehensive Environmental Response, 
     Compensation, and Liability Act of 1980 cannot qualify as 
     targeted areas.
       Eligible expenditures are those paid or incurred before 
     January 1, 2002.


                               House Bill

       No provision. However, H.R. 4923 as passed by the House 
     extends an empowerment zone's status as a ``targeted area'' 
     under section 198. In addition, H.R. 4923 provides that 
     renewal communities (as defined in H.R. 4923) also constitute 
     a ``targeted area'' under section 198.34
---------------------------------------------------------------------------
     \34\ Also see provisions above relating to empowerment zones 
     and renewal communities.
---------------------------------------------------------------------------
       Effective date.--The provision is effective for 
     expenditures incurred after June 30, 2001, and before January 
     1, 2010.


                            Senate Amendment

       No provision. However, S. 3152 extends the expiration date 
     for eligible expenditures to include those paid or incurred 
     before January 1, 2004.
       In addition, S. 3152 eliminates the targeted area 
     requirement, thereby, expanding eligible sites to include any 
     site containing (or potentially containing) a hazardous 
     substance that is certified by the appropriate State 
     environmental agency. However, expenditures undertaken at 
     sites that are identified on the national priorities list 
     under the Comprehensive Environmental Response, Compensation, 
     and Liability Act of 1980 would continue to not qualify as 
     eligible expenditures.
       Effective date.--The provision to extend the expiration 
     date is effective upon the date of enactment. The provision 
     to expand the class of eligible sites is effective for 
     expenditures paid or incurred after the date of enactment.


                          Conference Agreement

       The conference agreement follows S. 3152. By extending and 
     expanding section 198, the conferees do not intend to 
     displace the general tax law principle regarding expensing 
     versus capitalization of expenditures which continues to 
     apply to environmental remediation efforts not specifically 
     covered under section 198.

G. Extension of District of Columbia Homebuyer Tax Credit (Sec. 653 of 
                  the bill and Sec. 1400C of the Code)


                              present law

       First-time homebuyers of a principal residence in the 
     District of Columbia are eligible for a nonrefundable tax 
     credit of up to $5,000 of the amount of the purchase price. 
     The $5,000 maximum credit applies both to individuals and 
     married couples. Married individuals filing separately can 
     claim a maximum credit of $2,500 each. The credit phases out 
     for individual taxpayers with adjusted gross income between 
     $70,000 and $90,000 ($110,000-$130,000 for joint filers). For 
     purposes of eligibility, ``first-time homebuyer'' means any 
     individual if such individual did not have a present 
     ownership interest in a principal residence in the District 
     of Columbia in the one year period ending on the date of the 
     purchase of the residence to which the credit applies. The 
     credit is scheduled to expire for residences purchased after 
     December 31, 2001.


                               house bill

       No provision.


                            senate amendment

       No provision. However, S. 3152 includes a provision that 
     extends the first-time homebuyer credit for two years, 
     through December 31, 2003. The provision also extends the 
     phase-out range for married individuals filing a joint return 
     so that it is twice that of individuals. Thus, under the 
     provision, the District of Columbia homebuyer credit is 
     phased out for joint filers with adjusted gross income 
     between $140,000 and $180,000.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                          conference agreement

       The conference agreement follows the provision in S. 3152 
     with respect to the extension of the first-time homebuyer 
     credit for two years (through December 31, 2003). The 
     conference agreement does not include the provision regarding 
     the phase-out range.

  TITLE VII. ADMINISTRATIVE, MISCELLANEOUS, AND TECHNICAL CORRECTIONS 
                               PROVISIONS

                 Subtitle A. Administrative Provisions

 A. Exempt Certain Reports From Elimination Under the Federal Reports 
       Elimination and Sunset Act of 1995 (sec. 701 of the bill)


                              present law

       Section 303 of the Federal Reports Elimination and Sunset 
     Act of 1995 eliminates many periodic Federal reporting 
     requirements, effective May 15, 2000.


                               house bill

       No provision.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement exempts certain reports from 
     elimination and sunset pursuant to the Federal Reports 
     Elimination and Sunset Act of 1995.

   B. Extension of Deadlines for IRS Compliance with Certain Notice 
Requirements (sec. 702 of the bill, secs. 6631 and 6751(a) of the Code)


                              present law

       The Internal Revenue Service Restructuring and Reform Act 
     of 1998 (``IRS Restructuring Act of 1998'') imposed several 
     notice requirements relating to penalties, interest and 
     installment agreements. Section 6715 of the Code, added by 
     section 3306 of the IRS Restructuring Act of 1998, requires 
     that each notice imposing a penalty include the name of the 
     penalty, the Code section under which the penalty is imposed, 
     and a computation of the penalty.35 This 
     requirement applies to notices issued, and penalties 
     assessed, after December 31, 2000.36
---------------------------------------------------------------------------
     \35\ Sec. 6715(a).
     \36\ P.L. 105-206, sec. 3306.
---------------------------------------------------------------------------
       Section 6631 of the Code, added by section 3308 of the IRS 
     Restructuring Act of 1998, requires that every IRS notice 
     sent to an individual taxpayer that includes an amount of 
     interest required to be paid by the taxpayer also include a 
     detailed computation of the interest charged and a citation 
     to the Code section under which such interest is imposed. The 
     provision is effective for notices issued after December 31, 
     2000.
       Section 3506 of the IRS Restructuring Act of 1998 requires 
     the IRS to send every taxpayer in an installment agreement an 
     annual statement of the initial balance owed, the payments 
     made during the year, and the remaining balance. The 
     provision became effective on July 1, 2000.


                               house bill

       No provision.


                            senate amendment

       No provision.


                          conference agreement

       It is the understanding of the conferees that due to the 
     need for substantial systems modifications, and Year 2000 
     programming priorities, the IRS will be unable to fully 
     comply with certain notice requirements in accordance with 
     deadlines imposed by the IRS Restructuring Act of 1998. The 
     conference agreement extends the deadlines for complying with 
     the penalty, interest, and installment agreement notice 
     requirements. Specifically, the annual installment agreement 
     notice requirement is extended from July 1, 2000, to 
     September 1, 2001. The deadlines for complying with the 
     notice requirements relating to the computation of penalties 
     and interest 37 are both extended to June 30, 
     2001. In addition, for penalty notices issued after June 30, 
     2001, and before July 1, 2003, the notice requirements will 
     be treated as met if the notice contains a telephone number 
     at which the taxpayer can request a copy of the taxpayer's 
     assessment and payment history with respect to such penalty. 
     Similarly, for interest notices issued after June 30, 2001, 
     and before July 1, 2003, the notice requirements will be 
     treated as met if such notice contains a telephone number at 
     which the taxpayer can request a copy of the taxpayer's 
     payment history relating to interest amounts included in such 
     notice.
---------------------------------------------------------------------------
     \37\ Secs. 6715(a) and 6631.
---------------------------------------------------------------------------
       Effective date.--The provision is effective on the date of 
     enactment.

 C. Extension of Authority for Undercover Operations (sec. 703 of the 
                    bill and sec. 7608 of the Code)


                              present law

       The Anti-Drug Abuse Act of 1988 exempted IRS undercover 
     operations from the otherwise applicable statutory 
     restrictions controlling the use of Government funds (which 
     generally provide that all receipts must be deposited in the 
     general fund of the Treasury and all expenses be paid out of 
     appropriated funds). In general, the exemption permits the 
     IRS to ``churn'' the income earned by an undercover operation 
     to pay additional expenses incurred in the undercover 
     operation. The IRS is required to conduct a detailed 
     financial audit of large undercover operations in which the 
     IRS is churning funds and to provide an annual audit report 
     to the Congress on all such large undercover operations. The 
     exemption originally expired on December 31, 1989, and was 
     extended by the Comprehensive Crime Control Act of 1990 to 
     December 31, 1991. In the Taxpayer Bill of Rights II (Public 
     Law 104-168), the authority to churn funds from undercover 
     operations was extended for five years, through 2000.


                               house bill

       No provision.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement extends the authority of the IRS 
     to ``churn'' the income earned from undercover operations for 
     an additional five years, through 2005.
       Effective date.--The provision is effective on the date of 
     enactment.

[[Page H11002]]

D. Competent Authority and Pre-Filing Agreements (sec. 704 of the bill 
          and secs. 6103, 6110, and new sec. 6105 of the Code)


                              Present Law

     Section 6103
       Section 6103 of the Code sets forth the general rule that 
     returns and return information are confidential. A return is 
     any tax return, information return, declaration of estimated 
     tax, or claim for refund filed under the Code on behalf of or 
     with respect to any person. The term return also includes any 
     amendment or supplement, including supporting schedules or 
     attachments or lists, which are supplemental to or are part 
     of a filed return. Return information is defined broadly. It 
     includes the following information:
       A taxpayer's identity, the nature, source or amount of 
     income, payments, receipts, deductions, exemptions, credits, 
     assets, liabilities, net worth, tax liability, tax withheld, 
     deficiencies, overassessments, or tax payments;
       Whether the taxpayer's return was, is being, or will be 
     examined or subject to other investigation or processing;
       Any other data, received by, recorded by, prepared by, 
     furnished to, or collected by the Secretary with respect to a 
     return or with respect to the determination of the existence, 
     or possible existence, of liability (or the amount thereof) 
     of any person under this title for any tax, penalty, 
     interest, fine, forfeiture, or other imposition, or offense; 
     \38\5
---------------------------------------------------------------------------
     \38\ Sec. 6103(b)(2)(A).
---------------------------------------------------------------------------
       Any part of any written determination or any background 
     file document relating to such written determination which is 
     not open to public inspection under section 6110; \39\ and
---------------------------------------------------------------------------
     \39\ Sec. 6103(b)(2)(B).
---------------------------------------------------------------------------
       Any advance pricing agreement entered into by a taxpayer 
     and the Secretary and any background information related to 
     the agreement or any application for an advance pricing 
     agreement.
       The term ``return information'' does not include data in a 
     form that cannot be associated with or otherwise identify, 
     directly or indirectly, a particular taxpayer.
     Secrecy of information exchanged under tax treaties
       U.S. tax treaties typically contain articles governing the 
     exchange of information. These articles generally provide for 
     the exchange of information between the tax authorities of 
     the two countries when such information is necessary for 
     carrying out provisions of the treaty or of the countries' 
     domestic tax laws. Individuals referred to as ``competent 
     authorities'' are designated by each country to make written 
     requests for information and to receive information.\40\
---------------------------------------------------------------------------
     \40\ The U.S. competent authority is the Secretary of the 
     Treasury or his delegate. The U.S. competent authority 
     function has been delegated to the Commissioner of Internal 
     Revenue, who has redelegated the authority to the Director, 
     International. On interpretive issues, the latter acts with 
     the concurrence of the Associate Chief Counsel 
     (International) of the IRS.
---------------------------------------------------------------------------
       The exchange of information articles typically cover 
     information relating to taxes to which the treaty applies, 
     but can also apply to other taxes (e.g., excise taxes) not 
     covered by the treaty. Many of the treaties permit the 
     exchange of information even if the taxpayer involved is not 
     a resident of one of the treaty countries. The exchange of 
     information articles may be similar to, or represent a 
     variation on, Article 26 of the 1996 U.S. model income tax 
     treaty.
       Information that is received under the exchange of 
     information articles is subject to secrecy clauses contained 
     in the treaties. In this regard, the country requesting 
     information under the treaties typically is required to treat 
     any information received as secret in the same manner as 
     information obtained under its domestic laws. In general, 
     disclosure is not permitted other than to persons or 
     authorities involved in the administration, assessment, 
     collection or enforcement of taxes to which the treaty 
     applies. For example, disclosure generally can be made to 
     legislative bodies, such as the tax-writing committees of the 
     Congress, and the General Accounting Office for purposes of 
     overseeing the administration of U.S. tax laws.
       In addition to the exchange of information articles in U.S. 
     tax treaties, exchange of information provisions are 
     contained in tax information exchange agreements entered into 
     between the United States and another country.\41\ In 
     addition, information may be exchanged pursuant to the 
     Convention on Mutual Administrative Assistance in Tax Matters 
     developed by the Council of Europe and the Organization for 
     Economic Cooperation and Development (the ``Multilateral 
     Mutual Assistance Convention''), which limits the use of 
     exchanged information and permits disclosure of such 
     information only with the prior authorization of the 
     competent authority of the country providing the information. 
     \42\ The United States has also entered into a number of 
     implementation and coordination agreements with possessions 
     that provide for the exchange of tax information. Moreover, 
     the United States has entered into various mutual legal 
     assistance treaties with other countries, some of which can 
     be used to obtain tax information in criminal investigations.
---------------------------------------------------------------------------
     \41\ Sections 274(h)(6)(C) and 927(e)(3) specifically provide 
     the Secretary of the Treasury the authority to enter into tax 
     information exchange agreements. This eliminates the need for 
     Senate ratification, which is required for a tax treaty. In 
     addition, all tax information exchange agreements are 
     required to include specific non-disclosure provisions which 
     provide that ``information received by either country will be 
     disclosed only to persons or authorities (including courts 
     and administrative bodies) involved in the administration or 
     oversight of, or in the determination of appeals in respect 
     of, taxes of the United States, or the beneficiary country 
     and will be used by such persons or authorities only for such 
     purposes.''
     Sec. 274(h)(6)(C)(i).
     \42\ The U.S. Senate ratified the Multilateral Mutual 
     Assistance Convention, subject to certain reservations, in 
     September 1990. The Multilateral Mutual Assistance Convention 
     entered into force on April 1, 1995, and has been signed by 
     the following countries: Denmark, Finland, Iceland, the 
     Netherlands, Norway, Sweden, and the United States.
---------------------------------------------------------------------------
       Both the confidentiality provisions of section 6103, as 
     well as treaty secrecy provisions can cover return 
     information.
       Section 6110 and section 7121
       Section 6110 of the Code provides for disclosure of written 
     determinations. With certain exceptions, section 6110 makes 
     the text of any written determination the Internal Revenue 
     Service (``IRS'') issues available for public inspection. A 
     written determination is any ruling, determination letter, 
     technical advice memorandum, or Chief Counsel advice. The IRS 
     is required to redact certain material before making these 
     documents publicly available. 43 Among the 
     information to be redacted is information specifically 
     exempted from disclosure by any statute (other than Title 26) 
     that is applicable to the IRS. Once the IRS makes the written 
     determination publicly available, the background file 
     documents associated with such written determination are 
     available for public inspection upon written request. Section 
     6110 defines ``background file documents'' as any written 
     material submitted by the taxpayer or other requester in 
     support of the request. Background file documents also 
     include any communications between the IRS and persons 
     outside the IRS concerning such written determination that 
     occur before the IRS issues the determination.
---------------------------------------------------------------------------
     \43\ For rulings, determination letters and technical advice 
     memoranda, section 6110(c) provides the following exemptions 
     from disclosure:
---------------------------------------------------------------------------
       (1) the names, addresses, and other identifying details of 
     the person to whom the written determination pertains and of 
     any other person, other than a person with respect to whom a 
     notation is made under subsection (d)(1) (relating to third 
     party contacts), identified in the written determination or 
     any background file document;
       (2) information specifically authorized under criteria 
     established by an Executive order to be kept secret in the 
     interest of national defense or foreign policy, and which is 
     in fact properly classified pursuant to such Executive order;
       (3) information specifically exempted from disclosure by 
     any statute (other than [Title 26]) which is applicable to 
     the Internal Revenue Service;
       (4) trade secrets and commercial or financial information 
     obtained from a person and privileged or confidential;
       (5) information the disclosure of which would constitute a 
     clearly unwarranted invasion of personal privacy;
       (6) information contained in or related to examination, 
     operating, or condition reports prepared by, or on behalf of, 
     or for use of an agency responsible for the regulation or 
     supervision of financial institutions; and (7) geological and 
     geophysical information and data, including maps, concerning 
     wells.
       For Chief Counsel Advice, paragraphs 2 through 7 do not 
     apply, however, material may be deleted in accordance with 
     subsections (b) and (c) of the FOIA (except that in applying 
     Exemption 3 of the FOIA, no statutory provision of the Code 
     is to be taken into account.) See sec. 6110(i)(3).
       Section 6110 was added to the Code in 1976. The legislative 
     history provided that a written determination would not be 
     considered a ruling, technical advice memorandum, or 
     determination letter, unless the document satisfies three 
     criteria:
       (1) The document recites the relevant facts;
       (2) The document explains the applicable provisions of law; 
     and
       (3) The document shows the application of law to the 
     facts.\44\
---------------------------------------------------------------------------
     \44\ H.R. Rep. 94'658, at 315 (1976).
---------------------------------------------------------------------------
       The legislative history further provided that section 6110 
     `` does not require public disclosure of a closing agreement 
     entered into between the IRS and a taxpayer which finally 
     determines the taxpayer's tax liability with respect to a 
     taxable year'Your committee understands that a closing 
     agreement is generally the result of a negotiated settlement 
     and, as such, does not necessarily represent the IRS view of 
     the law. Your committee intends, however, that the closing 
     agreement exception is not to be used as a means of avoiding 
     public disclosure of determinations which, under present 
     practice, would be issued in a form which would be open to 
     public inspection [under the bill].'' \45\
---------------------------------------------------------------------------
     \45\ Id. at 316.
---------------------------------------------------------------------------
       Closing agreements are entered into under the authority of 
     section 7121. Closing agreements finally and conclusively 
     settle a tax issue between the IRS and a taxpayer. Closing 
     agreements may: (1) determine a taxpayer's entire tax 
     liability for a previous tax period; or (2) fix the tax 
     treatment of one or more specific items affecting tax 
     liability for any tax period. Thus, closing agreements may 
     settle the treatment of a specific item for periods ending 
     after the execution of the agreement. A single closing 
     agreement may

[[Page H11003]]

     cover both the determination of a taxpayer's entire tax 
     liability for a previous tax period and fix the tax 
     treatment of specific items for any tax period.
     Freedom of Information Act
       The Freedom of Information Act (``FOIA''), enacted in 1966, 
     established a statutory right to access government 
     information. While the purpose of section 6103 is to restrict 
     access to returns and return information, the basic purpose 
     of the FOIA is to ensure that the public has access to 
     government documents. In general, the FOIA provides that any 
     person has a right of access to Federal agency records, 
     except to the extent that such records (or portions thereof) 
     are protected from disclosure by one of nine exemptions or by 
     one of three special law enforcement record exclusions. 
     Exemption 3 of the FOIA allows the withholding of information 
     prohibited from disclosure by another statute if certain 
     requirements are met.\46\ The right of access is enforceable 
     in court.
---------------------------------------------------------------------------
     \46\ 5 U.S.C. sec. 552(b)(3).
---------------------------------------------------------------------------
     Pending FOIA requests and litigation involving IRS records
       Records covered by treaty secrecy clauses
       A publisher of tax related material and commentary has made 
     a FOIA request for the disclosure of competent authority 
     agreements. The request has been pending since March 14, 
     2000.\47\ The IRS has not denied the request, nor has it 
     produced any documents responsive to the request. At this 
     time, no suit has been filed to compel disclosure of these 
     documents, although such a suit may be brought in the future.
---------------------------------------------------------------------------
     \47\ The initial FOIA request of March 14, 2000, covered all 
     competent authority agreements executed for the United States 
     from January 1, 1990, to date. In response to a request from 
     the Department of Treasury, by letter dated April 17, 2000, 
     the FOIA request was narrowed to cover competent authority 
     agreements executed between 1997 and 1999. The right to 
     pursue the 1990 through 1996 agreements, however, was 
     reserved.
---------------------------------------------------------------------------
       In connection with a separate request, the IRS was sued 
     under the FOIA to compel disclosure of Field Service Advice 
     memoranda (``FSAs'').\48\ FSAs are prepared by attorneys in 
     the IRS National Office of the Office of Chief Counsel. They 
     are prepared in response to requests from IRS field personnel 
     for legal guidance, usually with respect to issues relating 
     to a particular taxpayer. FSAs usually contain a statement of 
     issues, facts, legal analysis and conclusions. The primary 
     purpose of FSAs is to ensure that IRS field personnel apply 
     the law correctly and uniformly. The D.C. Circuit determined 
     that FSAs are subject to disclosure. However, the court 
     remanded the case to district court to address assertions of 
     privilege, including those based on treaty secrecy. A 
     decision on this issue by the district court is still 
     pending.\49\
---------------------------------------------------------------------------
     \48\ Tax Analysts v. IRS, 117 F.3d 607 (D.C. Cir. 1997).
     \49\ Tax Analysts v. IRS, No. 94-CV-923 (GK) (D.D.C.).
---------------------------------------------------------------------------
       Pre-filing agreements
       On February 11, 2000, the IRS issued Notice 2000-12, in 
     which the IRS established a pilot program for ``Pre-filing 
     Agreements.'' Under this program, large businesses may 
     request a review and resolution of specific issues relating 
     to tax returns they expect to file between September and 
     December of 2000. The purpose of the program is to enable 
     taxpayers and the IRS to resolve issues that are likely to be 
     disputed in post-filing audits. Examples of such issues 
     include: (1) asset valuation and the allocation of a 
     business's purchase or sale price among the assets acquired 
     or sold; (2) the identification and documentation of hedging 
     transactions; and (3) the determination of ``market'' for 
     taxpayers using the lower of cost or market method of 
     inventory valuation in situations involving inactive markets. 
     The program is intended to address issues for which the law 
     is settled.
       In Notice 2000-12, the IRS stated that pre-filing 
     agreements are closing agreements entered into pursuant to 
     section 7121. As such, the notice provides that the 
     information generated or received by the IRS during the pre-
     filing agreement process constitutes return information. The 
     notice further provides that pre-filing agreements are not 
     written determinations as defined in section 6110, nor are 
     they subject to disclosure under the FOIA.
       Several pre-filing agreements have been completed. A FOIA 
     request for these agreements has not been made.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The provision affirms that closing and similar agreements, 
     and information exchanged and agreements reached pursuant to 
     a tax treaty, are confidential. Further, the provision 
     clarifies that such protected documents are not to be 
     disclosed under the FOIA or section 6110.
     Clarification that return information includes closing 
         agreements and similar dispute resolution agreements
       Protection for closing agreements, pre-filing agreements 
           and similar agreements not containing an exposition of 
           the tax law
       The bill provides that agreements entered into under 
     section 7121 or similar agreements are confidential return 
     information. Similar agreements are intended to include 
     negotiated agreements that (1) are the result of an 
     alternative dispute resolution or dispute avoidance process 
     relating to liability of any person under the Code for any 
     tax, penalty, interest, fine or forfeiture or other 
     imposition or offense and (2) do not establish, set forth, or 
     resolve the government's interpretation of the relevant tax 
     law. This is not meant to preclude citation, or repetition 
     of, the Code, Treasury regulations, or other published rules.
       It is intended that pre-filing agreements be covered by 
     this provision. It is the understanding of the conferees that 
     pre-filing agreements do not explain the applicable 
     provisions of law or otherwise contain any exposition of the 
     tax law or the position of the IRS. In addition, it is not 
     intended that the closing and similar agreement exception be 
     used as a means of avoiding public disclosure of 
     determinations that, under present law, would be issued in a 
     form that would be open to public inspection. Thus, technical 
     advice memoranda, chief counsel advice or other material 
     clearly available to the public under present law section 
     6110, would not be exempt from disclosure by virtue of the 
     fact that such material is contained in a background file for 
     a closing agreement. For example, if a revenue agent seeks 
     technical advice in connection with a pre-filing agreement, 
     such technical advice would remain subject to the 
     requirements of section 6110. Since the pre-filing agreement 
     program involves only settled issues of law, it is the 
     understanding of the conferees that documents of this nature 
     generally would not be generated in the pre-filing agreement 
     process.
       The provision is not intended to foreclose the disclosure 
     of tax-exempt organization closing agreements to the extent 
     such disclosure is authorized under section 
     6104.50 Since section 6103 permits the disclosure 
     of return information as authorized by Title 26, a disclosure 
     authorized by section 6104 is permissible, notwithstanding 
     the fact that a closing agreement is return information.
---------------------------------------------------------------------------
     \50\ The D.C. Circuit recently remanded to the district court 
     for factual development the issue of whether the closing 
     agreement in that case was submitted in support of an 
     exemption application, and therefore, subject to disclosure 
     under section 6104. Tax Analysts v. IRS, 214 F.3d 179 (D.C. 
     Cir 2000), vacating and remanding 99-2 U.S.T.C. (CCH) 794 
     (D.D.C. 1999).
---------------------------------------------------------------------------
       Report on pre-filing agreement program
       It is intended that the Secretary make publicly available 
     an annual report relating to the pe-filing agreement program 
     operations for the preceding calendar year. The annual 
     reporting requirement is for five years, or the duration of 
     the program, whichever is shorter. The report is to include 
     (1) the number of pre-filing agreements completed, (2) the 
     number of applications received, (3) the number of 
     applications withdrawn, (4) the types of issues which are 
     resolved by completed agreements, (5) whether the program is 
     being utilized by taxpayers who were previously subject to 
     audit by the IRS, (6) the average length of time required to 
     complete an agreement, (7) the number, if any, and subject of 
     technical advice and chief counsel advice memoranda issued to 
     address issues arising in connection with any pre-filing 
     agreement, (8) any model agreements,51 and (9) any 
     other information the Secretary deems appropriate. The first 
     report, covering the calendar year 2000, is to be issued no 
     later than March 30, 2001. The information required for the 
     annual report is subject to the restrictions of section 6103. 
     Therefore, the Secretary will disclose information only in a 
     form that cannot be associated with or otherwise identify, 
     directly or indirectly, a particular taxpayer. The Joint 
     Committee on Taxation periodically may review pre-filing 
     agreements to determine whether they contain legal 
     interpretations that should be disclosed to the public.
---------------------------------------------------------------------------
     \51\ See e.g., Appendix A of Rev. Proc. 2000-38 which is a 
     model ``Closing Agreement on Final Determination Covering 
     Specific Matters'' regarding method of accounting for 
     distributor commissions. Rev. Proc. 2000-38, 2000-40 I.R.B. 
     314-315 (October 2, 2000). That model agreement does not 
     identify any particular taxpayer but sets forth the substance 
     of the agreement.
---------------------------------------------------------------------------
     Clarification that information protected by treaty is 
         confidential
       Protection for agreements and information exchanged 
           pursuant to tax treaty
       The provision adds a new Code section 6105, which provides 
     that tax convention information, with limited exceptions, 
     cannot be disclosed. Thus, the provision confirms that 
     agreements concluded under, and information received pursuant 
     to, a tax convention are confidential and can only be 
     disclosed as provided in such tax convention.
       Under the provision, a tax convention is defined to include 
     any income tax or gift and estate tax convention, or any 
     other convention or bilateral agreement (including 
     multilateral conventions and agreements and any agreement 
     with a possession of the United States) providing for the 
     avoidance of double taxation, the prevention of fiscal 
     evasion, nondiscrimination with respect to taxes, the 
     exchange of tax relevant information with the United States, 
     or mutual assistance in tax matters.
       It is the understanding of the conferees that competent 
     authority agreements (also referred to as mutual agreements) 
     generally do not contain an explanation of the law or 
     application of law to facts. Instead, such agreements are 
     negotiated arrangements to resolve issues of double taxation. 
     Thus, the term tax convention information for purposes of the 
     provision includes: (1) any agreement entered into with the 
     competent authority of one or more foreign governments

[[Page H11004]]

     pursuant to a tax convention; (2) an application for relief 
     under a tax convention (sought by either a taxpayer or 
     another competent authority); (3) any background information 
     related to such agreement or application; (4) documents 
     implementing such agreement; and (5) any other information 
     exchanged pursuant to a tax convention that is treated as 
     confidential or secret under such tax convention. The 
     conferees intend that tax convention information would 
     include documents and any other information that reflects tax 
     convention information, including the association of a 
     particular treaty partner with a specific issue or matter.
       The general rule that tax convention information cannot be 
     disclosed does not apply to the disclosure of tax convention 
     information to persons or authorities (including courts and 
     administrative bodies) that are entitled to disclosure under 
     the tax convention. It also does not apply to any generally 
     applicable procedural rules regarding applications for 
     relief under a tax convention. This exception is intended 
     to ensure that there is no restriction on the release by 
     the Secretary of publicly available procedural rules 
     concerning matters such as how or when to make a request 
     for competent authority assistance. Thus, certain material 
     generated by IRS, i.e., its Competent Authority procedures 
     (primarily reflected in Rev. Proc. 96-13), or similar 
     material produced by a treaty partner (for example, an 
     Information Circular produced and published by the 
     Canadian tax authority) may be made available to the 
     public. The general rule does not apply to the disclosure 
     of information not relating to a particular taxpayer if, 
     after consultation with the parties to a tax convention, 
     the Secretary determines that such disclosure would not 
     impair tax administration. This is consistent with current 
     practice. An example of a general agreement that could be 
     disclosed under this provision is the agreement between 
     the competent authorities of Mexico and the United States 
     regarding the maquiladora industry. That agreement, which 
     was not taxpayer specific, was publicized by press release 
     IR-INT-1999-13. The conferees intend that the ``impairment 
     of tax administration'' for purposes of this provision 
     include, but not be limited to, the release of documents 
     that would adversely affect the working relationship of 
     the treaty partners. Under the provision, except as 
     otherwise provided, taxpayer- specific tax convention 
     information could not be publicly disclosed, even if it 
     would not impair tax administration.
       A taxpayer-specific competent authority agreement that 
     relates to the existence or possible existence of liability 
     (or amount thereof) of any person for any tax, penalty, 
     interest, fine, forfeiture, or other imposition or offense 
     under the Code is return information under section 6103. It 
     is also an agreement pursuant to a tax convention under 
     section 6105. Return information, including taxpayer-specific 
     competent authority agreements, remains subject to the 
     confidentiality provisions of section 6103. Thus, civil and 
     criminal penalties for the unauthorized disclosure of returns 
     and return information continue to apply to return 
     information that is also covered by section 6105. However, 
     tax convention information that is return information may 
     only be disclosed to the extent provided in, and subject to 
     the terms and conditions of, the relevant tax convention.
     Interaction with FOIA and section 6110
       Under the provision, closing agreements and similar 
     agreements would not be considered written determinations for 
     purposes of section 6110 and, thus, would not be subject to 
     public disclosure. Such agreements would be defined as return 
     information under section 6103 and, therefore, such documents 
     would be protected from disclosure pursuant to Exemption 3 of 
     the FOIA in conjunction with section 6103.
       In addition, under the provision, section 6110 would not 
     apply to material covered by section 6105. In the litigation 
     over FSAs, there has been some dispute as to whether treaties 
     qualify as statutes for purposes of withholding information 
     pursuant to Exemption 3 of the FOIA. The conferees believe 
     that treaties are the equivalent of statutes for purposes of 
     Exemption 3 of the FOIA. Section 6105 satisfies Exemption 3 
     of the FOIA. Taxpayer-specific tax convention information 
     concerning a taxpayer's tax liability, such as taxpayer-
     specific competent authority agreements, would be exempt from 
     the FOIA as both return information under section 6103 and 
     information protected from disclosure by tax convention under 
     section 6105. Agreements not relating to a particular 
     taxpayer, and other tax convention information related to 
     such agreements, could be disclosed under FOIA if it is 
     determined that the disclosure would not impair tax 
     administration.


                             Effective Date

       The provision applies to disclosures on, or after, the date 
     of enactment, and thus, applies to all documents in existence 
     on, or created after, the date of enactment.

 E. Increase Joint Committee on Taxation Refund Review Threshold to $2 
        Million (Sec. 705 of the Bill and Sec. 6405 of the Code)


                              Present Law

       No refund or credit in excess of $1,000,000 of any income 
     tax, estate or gift tax, or certain other specified taxes, 
     may be made until 30 days after the date a report on the 
     refund is provided to the Joint Committee on Taxation (sec. 
     6405). A report is also required in the case of certain 
     tentative refunds. Additionally, the staff of the Joint 
     Committee on Taxation conducts post-audit reviews of large 
     deficiency cases and other select issues.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement increases the threshold above 
     which refunds must be submitted to the Joint Committee on 
     Taxation for review from $1,000,000 to $2,000,000. The staff 
     of the Joint Committee on Taxation would continue to exercise 
     its existing statutory authority to conduct a program of 
     expanded post-audit reviews of large deficiency cases and 
     other select issues, and the IRS is expected to cooperate 
     fully in this expanded program.
       Effective date.--The provision is effective on the date of 
     enactment, except that the higher threshold does not apply to 
     a refund or credit with respect to which a report was made 
     before the date of enactment.

  F. Clarifying the Allowance of Certain Tax Benefits With Respect to 
 Kidnapped Children (sec. 706 of the bill and secs. 2, 24, 32, and 151 
                              of the Code)


                              Present Law

       The Code generally requires that a taxpayer provide over 
     one-half of the support for each individual claimed as that 
     taxpayer's dependent. Similarly, the child credit, the 
     surviving spouse filing status, and the head of household 
     filing status require that a taxpayer satisfy certain 
     requirements with regard to individuals that qualify as the 
     taxpayer's dependent(s). Finally, the earned income credit 
     for taxpayers with qualifying children generally is available 
     only if the taxpayer has the same principal place of abode 
     for more than one-half the taxable year with an otherwise 
     qualifying child.
       Recently published IRS guidance first denied a dependency 
     exemption to certain taxpayers with kidnapped children (TAM 
     200034029), then allowed such tax benefits to such taxpayers 
     (TAM 200038059).


                               House Bill

       No provision. However, H.R. 5117 clarifies that the 
     dependency exemption, the child credit, the surviving spouse 
     filing status, the head of household filing status, and the 
     earned income credit are available to an otherwise qualifying 
     taxpayer with respect to a child who is presumed by law 
     enforcement authorities to have been kidnapped by someone who 
     is not a member of the family of such child or the taxpayer. 
     Generally, this treatment continues for all taxable years 
     ending during the period that the child is kidnapped. 
     However, this treatment ends for the taxable year ending 
     after the calender year in which it is determined that the 
     child is dead (or, if earlier, in which the child would have 
     attained age 18).
       Effective date.--The provision is effective for taxable 
     years ending after the date of enactment.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement follows the provision of H.R. 
     5117.

   G. Conforming Changes to Accommodate Reduced Issuances of Certain 
  Treasury Securities (sec. 707 of the bill and sec. 995(f)(4) of the 
                                 Code)


                              Present Law

       Code section 995(f)(4) dealing with the interest charge on 
     the deferred tax liability of the shareholders of a domestic 
     international sales corporation provides that the interest 
     rate be determined by reference to the average investment 
     yield on United States Treasury bills with maturities of 52 
     weeks. In addition, provisions of Federal law relating to 
     interest on monetary judgments in civil cases recovered in 
     Federal district court and on a judgment against the United 
     States affirmed by the Supreme Court (Title 28), interest on 
     certain unpaid criminal fines and penalties (Title 18), and 
     interest on compensation for certain takings of property 
     (Title 40) determine the applicable interest rate by 
     reference to 52-week Treasury bills.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conferees understand that, as a result of prior 
     Congressional efforts at budgetary control, current and 
     projected Federal budget surpluses are reducing the need of 
     the Treasury Department to issue certain securities. The 
     Treasury Department has informed the Congress that on grounds 
     of efficient debt management, and predictability and 
     liquidity for the financial markets, the Treasury Department 
     has announced it is likely to cease issuing 52-week Treasury 
     bills. The conference agreement modifies the Code (sec. 
     995(f)(4)) and certain other parts of Federal law relating to 
     interest on monetary judgments in civil cases recovered in 
     Federal district court and on a judgment against the United 
     States affirmed by the Supreme Court (Title 28), interest on 
     certain unpaid criminal fines and penalties (Title 18), and 
     interest on compensation for certain takings of property 
     (Title 40) that make specific reference to yields on 52-week 
     Treasury bills.

[[Page H11005]]

     The conference agreement generally replaces the reference to 
     52-week Treasury bills with a reference to the weekly average 
     one-year constant maturity Treasury yield, as published by 
     the Board of Governors of the Federal Reserve System.
       Effective date.--The provision is effective upon the date 
     of enactment.

  H. Authorization of Agencies to Use Corrected Consumer Price Index 
                         (sec. 708 of the bill)


                              Present Law

       Code section 1(f) provides for adjustments in the tax 
     tables so that inflation will not result in tax increases. 
     Numerous other provisions of the Code are indexed as well. 
     Section 1(f) provides that inflation is measured by changes 
     in the consumer price index (``CPI'') for the preceding year 
     as published by the Department of Labor compared to the CPI 
     for the calendar year 1992. Section 1(f) directs the 
     Secretary to publish tables with applicable tax rates based 
     upon calculated inflation adjustments by December 15 of the 
     year before the year to which the tables are to apply.
       In addition, payments made under Social Security, certain 
     Federal employee retirement programs, and certain payments to 
     individuals under various welfare and income support programs 
     are adjusted annually by changes in the CPI.
       On September 28, 2000, the Bureau of Labor Statistics 
     (``BLS'') announced that the agency had discovered a 
     computational error in quality adjustments of air 
     conditioning as a part of the cost of housing resulting in 
     errors in the reported CPI between January 1999 and August 
     2000. The BLS reported that the CPI levels starting in 
     January 1999 have been either 0.0, 0.1, or 0.2 index points 
     lower than the levels that would have been published without 
     the error. Consistent with agency guidelines and past 
     practice, the BLS announced that it is revising the reported 
     CPI back to January 2000 to the fully correct levels. The BLS 
     will make no change to reported levels for January through 
     December 1999. However, the BLS will make the corrected 
     levels of the CPI for 1999 available upon request.


                               House Bill

       No provision.


                              Senate Bill

       No provision.


                          Conference Agreement

       The conference agreement authorizes the Secretary of the 
     Treasury to use the corrected levels of the CPI for 1999 and 
     2000 for all purposes of the Code to which they might apply. 
     The conference agreement directs the Secretary to prescribe 
     new tables reflecting the correct levels of the 1999 CPI for 
     the 2000 tax year.
       In addition, the conference agreement provides that the 
     Director of the Office of Management and Budget (``OMB'') 
     shall assess Federal benefit programs to ascertain the extent 
     to which the CPI error has or will result in a shortfall in 
     program payments to individuals for 2000 and future years. 
     The conference agreement directs the Director to issue 
     guidelines to agency administrators to determine the extent, 
     if any, of such shortfalls in payments to individuals. The 
     agency administrators are to report their findings to the 
     Director and to Congress within 30 days. The conference 
     agreement provides that, within 60 days of the date of 
     enactment, the Director instruct the head of any Federal 
     agency which administers an affected program to make a 
     payment or payments to compensate for the shortfall and that 
     such payments are targeted to the amount of the shortfall 
     experienced by individual beneficiaries. Applicable Federal 
     benefit programs include the old-age and survivors insurance 
     program, the disability insurance program and the 
     supplemental security income program under the Social 
     Security Act and other programs as determined by the 
     Director. The conference agreement directs the Director to 
     report to the Congress on the activities performed pursuant 
     to this provision by April 1, 2001.
       The conferees recognize that the error in the CPI was 
     computational in nature. The conferees support the BLS's 
     policy to incorporate methodological changes only on a 
     prospective basis. The conferees also understand that BLS 
     policy provides that published indices generally not be 
     revised except for those found to be in error for the year in 
     which the error was discovered or within the past twelve 
     months. The conferees recognize that the errors in the CPI 
     date to as long as 20 months prior to the announcement of the 
     error. The conferees recognize that the BLS's policy of not 
     publishing corrected index numbers, beyond those provided as 
     described above, has been applied in those rare cases where 
     an error has been discovered in the past. However, the 
     conferees understand that in the past 25 years the few errors 
     that have been discovered have involved sub-indices and have 
     not affected the level of the CPI itself. The last time the 
     U.S. City Average All Items CPI was revised was in December 
     1974, when the values for the months of April through October 
     1974 were recalculated and released with issuance of the 
     November CPI. Therefore, past precedent does not strictly 
     apply to the present situation.
       The conferees believe that integrity of official government 
     data is vital to policymakers and private individuals and 
     businesses throughout the country. The conferees emphasize 
     that the CPI plays an important role in economic planning. 
     For this reason the conferees are concerned that, while the 
     BLS has published corrected CPI numbers for 2000, the BLS 
     does not intend to publish corrected CPI numbers for 1999 as 
     part of the official CPI series. To its credit, the BLS 
     announced the error publicly. The national press reported the 
     error. 52 In the absence of a correction to the 
     official CPI series, the Federal government will be left in 
     the position of maintaining, as an official data series, 
     index numbers that the Federal government has admitted are 
     incorrect. The conferees believe that the public's trust in 
     the integrity of official government data is a paramount goal 
     and the conferees strongly encourage the Commissioner of the 
     Bureau of Labor Statistics to review carefully the agency's 
     current policy with respect to publishing as part of an 
     official series corrections to data found to be in error for 
     reasons of computational error. The conferees believe such a 
     review should be made both with respect to the error 
     announced on September 28, 2000, and as a matter for the 
     future for those rare circumstances where such a similar 
     computational error might once again arise.
---------------------------------------------------------------------------
     \52\ For example, John M. Berry, ``Inflation Higher Than 
     Reported,'' The Washington Post, September 27, 2000, p. E-1, 
     John M. Berry, ``Rent Error Leads to Revision Of the CPI,'' 
     The Washington Post, September 29, 2000, p. E-3, Nicholas 
     Kulish, ``Major Price Index Is Revised Upward As Result of 
     Error,'' The Wall Street Journal, September 28, 2000, p. A2, 
     and Nicholas Kulish, ``Second-Period GDP Rose at 5.6% Annual 
     Rate,'' The Wall Street Journal, September 29, 2000, p. A2. 
     The conferees observe that these press reports highlight the 
     potential confusion for the public regarding these data. The 
     Washington Post reported that ``the CPI figures for 1999 were 
     not revised'' (September 29, 2000 story) while The Wall 
     Street Journal reported that ``[t]he BLS said a complete 
     revision of all the data sets would be released'' (September 
     28, 2000 story) and ``it [BLS] announced that it would revise 
     the index'' (September 29, 2000 story).
---------------------------------------------------------------------------
       Effective date.--The provision is effective on the date of 
     enactment.

 I. Prevent Duplication or Acceleration of Loss Through Assumption of 
  Certain Liabilities (sec. 709 of the bill and sec. 358 of the Code)


                              Present Law

       Generally, no gain or loss is recognized when one or more 
     persons transfer property to a corporation in exchange for 
     stock and immediately after the exchange such person or 
     persons control the corporation. However, a transferor 
     recognizes gain to the extent it receives money or other 
     property (``boot'') as part of the exchange (sec. 351).
       The assumption of liabilities by the controlled corporation 
     generally is not treated as boot received by the transferor, 
     53 except that the transferor recognizes gain to 
     the extent that the liabilities assumed exceed the total of 
     the adjusted basis of the property transferred to the 
     controlled corporation pursuant to the exchange (sec. 
     357(c)).
---------------------------------------------------------------------------
     \53\ The assumption of liabilities is treated as boot if it 
     can be shown that ``the principal purpose'' of the assumption 
     is tax avoidance on the exchange, or is a non-bona fide 
     business purpose (sec. 357(b)).
---------------------------------------------------------------------------
       The assumption of liabilities by the controlled corporation 
     generally reduces the transferor's basis in the stock of the 
     controlled corporation that assumed the liabilities. The 
     transferor's basis in the stock of the controlled corporation 
     is the same as the basis of the property contributed to the 
     controlled corporation, increased by the amount of any gain 
     (or dividend) recognized by the transferor on the exchange, 
     and reduced by the amount of any money or property received, 
     and by the amount of any loss recognized by the transferor 
     (sec. 358). For this purpose, the assumption of a liability 
     is treated as money received by the transferor.
       An exception to the general treatment of assumptions of 
     liabilities applies to assumptions of liabilities that would 
     give rise to a deduction, provided the incurrence of such 
     liabilities did not result in the creation or increase of 
     basis of any property. The assumption of such liabilities is 
     not treated as money received by the transferor in 
     determining whether the transferor has gain on the exchange. 
     Similarly, the transferor's basis in the stock of the 
     controlled corporation is not reduced by the assumption of 
     such liabilities. The Internal Revenue Service has ruled that 
     the assumption by an accrual basis corporation of certain 
     contingent liabilities for soil and groundwater remediation 
     would be covered by this exception. 54
---------------------------------------------------------------------------
     \54\ Rev. Rul. 95-74, 1995-2 C.B. 36. The ruling addressed a 
     parent corporation's transfer to a subsidiary of 
     substantially all the assets of a manufacturing business, in 
     exchange for stock and the assumption of liabilities 
     associated with the business, including certain contingent 
     environmental remediation liabilities. These liabilities 
     arose due to contamination of land during the parent 
     corporation's operation of the manufacturing business. The 
     transferor had no plan or intention to dispose of (or to have 
     the subsidiary issue) any subsidiary stock. The IRS ruled 
     that the contingent liabilities would not reduce the 
     transferor's basis in the stock of the subsidiary because the 
     liabilities had not been taken into account by the transferor 
     prior to the transfer and had not given rise to deductions or 
     basis for the transferor.
---------------------------------------------------------------------------


                               House Bill

       No provision. However, the conference agreement to the 
     Taxpayer Refund and Relief Act of 1999 (H.R. 2488) included 
     an earlier version of the legislation, effective for 
     assumptions of liabilities after July 14, 1999.


                            Senate Amendment

       No provision. However, the conference agreement to the 
     Taxpayer Refund and Relief Act of 1999 (H.R. 2488) included 
     an earlier

[[Page H11006]]

     version of the legislation, effective for assumptions of 
     liabilities after July 14, 1999. In addition, on October 20, 
     1999, the Senate Finance Committee reported a bill (S. 1792) 
     that contains a provision that limits the acceleration or 
     duplication of losses through assumptions of liabilities. On 
     April 4, 2000, Senators Roth and Moynihan introduced a bill 
     that contains the same provision (S. 2354).
       Effective date.--The provision in S. 2354 is effective for 
     assumptions of liabilities on or after October 19, 1999. 
     Except as provided by the Secretary, the rules addressing 
     transactions involving partnerships are effective with the 
     same effective date. Any rules addressing transactions 
     involving S corporations may likewise be effective for 
     assumptions of liabilities on or after October 19, 1999 or 
     such later date as may be prescribed in such rules.


                          Conference Agreement

       The conference agreement adopts the provision in S. 2354.
       Under the conference agreement, if the basis of stock 
     (determined without regard to this provision) received by a 
     transferor as part of a tax-free exchange with a controlled 
     corporation exceeds the fair market value of the stock, then 
     the basis of the stock received is reduced (but not below the 
     fair market value) by the amount (determined as of the date 
     of the exchange) of any liability that (1) is assumed in 
     exchange for such stock, and (2) did not otherwise reduce the 
     transferor's basis of the stock by reason of the assumption. 
     Except as provided by the Secretary of the Treasury, this 
     provision does not apply where the trade or business with 
     which the liability is associated is transferred to the 
     corporation as part of the exchange, or where substantially 
     all the assets with which the liability is associated are 
     transferred to the corporation as part of the exchange.
       The exceptions for transfers of a trade or business, or of 
     substantially all the assets, with which a liability is 
     associated, are intended to obviate the need for valuation or 
     basis reduction in such cases. The exceptions are not 
     intended to apply to situations involving the selective 
     transfer of assets that may bear some relationship to the 
     liability, but that do not represent the full scope of the 
     trade or business, (or substantially all the assets) with 
     which the liability is associated.
       For purposes of the provision, the term ``liability'' 
     includes any fixed or contingent obligation to make payment, 
     without regard to whether such obligation or potential 
     obligation is otherwise taken into account under the Code. 
     The determination whether a liability (as more broadly 
     defined for purposes of this provision) has been assumed is 
     made in accordance with the provisions of section 357(d)(1) 
     of the Code. Under the standard of 357(d)(1), a recourse 
     liability is treated as assumed if, based on all the facts 
     and circumstances, the transferee has agreed to and is 
     expected to satisfy such liability (or portion thereof), 
     whether or not the transferor has been relieved of the 
     liability. For example, if a transferee corporation does 
     not formally assume a recourse obligation or potential 
     obligation of the transferor, but instead agrees and is 
     expected to indemnify the transferor with respect to all 
     or a portion of a such an obligation, then the amount that 
     is agreed to be indemnified is treated as assumed for 
     purposes of the provision, whether or not the transferor 
     has been relieved of such liability. Similarly, a 
     nonrecourse liability is treated as assumed by the 
     transferee of any asset subject to such 
     liability.55
---------------------------------------------------------------------------
     \55\ Section 357(d)(2) contains a limitation in the case of 
     certain nonrecourse liabilities. Also, under section 357, 
     regulations, if issued, may provide for different results.
---------------------------------------------------------------------------
       The application of the provision is illustrated in the 
     following example: Assume a taxpayer transfers assets with an 
     adjusted basis and fair market value of $100 to its wholly- 
     owned corporation and the corporation assumes $40 of 
     liabilities (the payment of which would give rise to a 
     deduction). Thus, the value of the stock received by the 
     transferor is $60. Under present law, the basis of the stock 
     would be $100. The provision requires that the basis of the 
     stock be reduced to $60 (i.e., a reduction of $40). Except as 
     provided by the Secretary, no basis reduction is required if 
     the transferred assets consisted of the trade or business, or 
     substantially all the assets, with which the liability is 
     associated.
       The provision does not change the tax treatment with 
     respect to the transferee corporation.
       The Secretary of the Treasury is directed to prescribe 
     rules providing appropriate adjustments to prevent the 
     acceleration or duplication of losses through the assumption 
     of liabilities (as defined in the provision) in transactions 
     involving partnerships. The Secretary may also provide 
     appropriate adjustments in the case of transactions involving 
     S corporations. In the case of S corporations, such rules may 
     be applied instead of the otherwise applicable basis 
     reduction rules.
       Effective date.--The provision is effective for assumptions 
     of liabilities on or after October 19, 1999. Except as 
     provided by the Secretary, the rules addressing transactions 
     involving partnerships are effective with the same effective 
     date Any rules addressing transactions involving S 
     corporations may likewise be effective for assumptions of 
     liabilities on or after October 19, 1999, or such later date 
     as may be prescribed in such rules.

                  Subtitle B. Miscellaneous Provisions

A. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland Waterway 
 Barge Fuels (sec. 710 of the bill and secs. 4041 and 4042 of the Code)


                              Present Law

       Under present law, diesel fuel used in trains is subject to 
     a 4.3-cents-per gallon General Fund excise tax. Similarly, 
     fuels used in barges operating on the designated inland 
     waterways system is subject to a 4.3-cents-per-gallon General 
     Fund excise tax. In both cases, the 4.3-cents- per-gallon 
     excise tax rates are permanent.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The 4.3-cents-per-gallon General Fund excise tax rates on 
     diesel fuel used in trains and fuels used in barges operating 
     on the designated inland waterways system is repealed.
       Effective date.--The provision takes effect on January 1, 
     2001.

    B. Repeal of Reduction of Deductions for Mutual Life Insurance 
   Companies and of Policyholder Surplus Accounts of Life Insurance 
Companies (secs. 711-712 of the bill and secs. 809 and 815 of the Code)


                         Prior and Present Law

     Reduction in deductions for policyholder dividends and 
         reserves of mutual life insurance companies (sec. 809)
       In general, a corporation may not deduct amounts 
     distributed to shareholders with respect to the corporation's 
     stock. The Deficit Reduction Act of 1984 added a provision to 
     the rules governing insurance companies that was intended to 
     remedy the failure of prior law to distinguish between 
     amounts returned by mutual life insurance companies to 
     policyholders as customers, and amounts distributed to them 
     as owners of the mutual company.
       Under the provision, section 809, a mutual life insurance 
     company is required to reduce its deduction for policyholder 
     dividends by the company's differential earnings amount. If 
     the company's differential earnings amount exceeds the amount 
     of its deductible policyholder dividends, the company is 
     required to reduce its deduction for changes in its reserves 
     by the excess of its differential earnings amount over the 
     amount of its deductible policyholder dividends. The 
     differential earnings amount is the product of the 
     differential earnings rate and the average equity base of a 
     mutual life insurance company.
       The differential earnings rate is based on the difference 
     between the average earnings rate of the 50 largest stock 
     life insurance companies and the earnings rate of all mutual 
     life insurance companies. The mutual earnings rate applied 
     under the provision is the rate for the second calendar year 
     preceding the calendar year in which the taxable year begins. 
     Under present law, the differential earnings rate cannot be a 
     negative number.
       A company's equity base equals the sum of: (1) its surplus 
     and capital increased by 50 percent of the amount of any 
     provision for policyholder dividends payable in the following 
     taxable year; (2) the amount of its nonadmitted financial 
     assets; (3) the excess of its statutory reserves over its tax 
     reserves; and (4) the amount of any mandatory security 
     valuation reserves, deficiency reserves, and voluntary 
     reserves. A company's average equity base is the average of 
     the company's equity base at the end of the taxable year and 
     its equity base at the end of the preceding taxable year.
       A recomputation or ``true-up'' in a subsequent year is 
     required if the differential earnings amount for the taxable 
     year either exceeds, or is less than, the recomputed 
     differential earnings amount. The recomputed differential 
     earnings amount is calculated taking into account the average 
     mutual earnings rate for the calendar year (rather than the 
     second preceding calendar year, as above). The amount of the 
     true-up for any taxable year is added to, or deducted from, 
     the mutual company's income for the succeeding taxable year.
     Distributions to shareholders from policyholders surplus 
         account (sec. 815)
       Under the law in effect from 1959 through 1983, a life 
     insurance company was subject to a three-phase taxable income 
     computation under Federal tax law. Under the three-phase 
     system, a company was taxed on the lesser of its gain from 
     operations or its taxable investment income (Phase I) and, if 
     its gain from operations exceeded its taxable investment 
     income, 50 percent of such excess (Phase II). Federal income 
     tax on the other 50 percent of the gain from operations 
     56 was

[[Page H11007]]

     deferred, and was accounted for as part of a policyholder's 
     surplus account and, subject to certain limitations, taxed 
     only when distributed to stockholders or upon corporate 
     dissolution (Phase III). To determine whether amounts had 
     been distributed, a company maintained a shareholders surplus 
     account, which generally included the company's previously 
     taxed income that would be available for distribution to 
     shareholders.57 Distributions to shareholders were 
     treated as being first out of the shareholders surplus 
     account, then out of the policyholders surplus account, and 
     finally out of other accounts.
---------------------------------------------------------------------------
     \56\ The legislative history to the Life Insurance Company 
     Tax Act of 1959 states that ``[t]his 50 percent reduction in 
     underwriting gains is made because of the claim that it is 
     difficult to establish with certainty the actual annual 
     income of life insurance companies. It has been pointed out 
     that because of the long-term nature of their contracts, 
     amounts, which may appear as income in the current year and 
     as proper additions to surplus, may, as a result of 
     subsequent events, be needed to fulfill life insurance 
     contracts. Because of this difficulty in arriving at true 
     underwriting gains on an annual basis, the bill provides for 
     the taxation of only 50 percent of this gain on a current 
     basis.'' Report of the Committee on Ways and Means to 
     accompany H.R. 4245, H. Rep. No. 34, 86th Cong., 1st Sess. at 
     13 (1959). Similarly, the Senate report provides, ``Although 
     it is believed desirable to subject this underwriting income 
     to tax, it is stated that because of the long-term nature of 
     insurance contracts it is difficult, if not impossible, to 
     determine the true income of life insurance companies 
     otherwise than by ascertaining over a long period of time the 
     income derived from a contract or block of contracts. Because 
     of this, the bill as amended by your committee, like the bill 
     as passed by the House, does not attempt to tax on an annual 
     basis all of what might appear to be income. In both the 
     House and your committee's bill, half of the underwriting 
     income is taxed as it accrues each year. The other half of 
     the underwriting income is taxed when it is paid out in a 
     distribution to shareholders after the taxed income has been 
     distributed, or when it is voluntarily segregated and held 
     for the benefit of the shareholders. This other half of the 
     underwriting income also is taxed if the cumulative amount 
     exceeds certain prescribed limits or if for a specified 
     period of time the company ceases to be a life insurance 
     company.'' Report of the Committee on Finance to accompany 
     H.R. 4245, S. Rep. No. 291, 86th Cong., 1st Sess. at 7 
     (1959).
     \57\ Other events are treated as a subtraction from the 
     policyholders surplus account. If for any taxable year the 
     taxpayer is not an insurance company, or for any 2 taxable 
     years the company is not a life insurance company, then the 
     balance in the policyholder surplus account at the close of 
     the preceding taxable year is taken into income (former sec. 
     815(d)(2) as in effect prior to the 1984 Act, which is 
     referred to in present-law sec. 815(f)). Further, the 
     policyholder surplus account is reduced by the excess of the 
     account over the greatest of 3 amounts related to reserves: 
     (1) 15 percent of life insurance reserves at the end of the 
     taxable year; (2) 25 percent of the amount by which the life 
     insurance reserves at the end of the taxable year exceed the 
     life insurance reserve at the end of 1958; or (3) 50 percent 
     of the net amount of the premiums and other consideration 
     taken into account for the taxable year (former sec. 
     815(d)(4)(A)-(C), as in effect prior to the 1984 Act, which 
     is referred to in present-law sec. 815(f)).
---------------------------------------------------------------------------
       The Deficit Reduction Act of 1984 included provisions that, 
     for 1984 and later years, eliminated further deferral of tax 
     on amounts (described above) that previously would have been 
     deferred under the three-phase system. Although for taxable 
     years after 1983, life insurance companies may not enlarge 
     their policyholders surplus account, the companies are not 
     taxed on previously deferred amounts unless the amounts are 
     treated as distributed to shareholders or subtracted from the 
     policyholders surplus account (sec. 815).
       Under present law, any direct or indirect distribution to 
     shareholders from an existing policyholders surplus account 
     of a stock life insurance company is subject to tax at the 
     corporate rate in the taxable year of the 
     distribution.58 Present law (like prior law) 
     provides that any distribution to shareholders is treated as 
     made (1) first out of the shareholders surplus account, to 
     the extent thereof, (2) then out of the policyholders surplus 
     account, to the extent thereof, and (3) finally, out of other 
     accounts.59
---------------------------------------------------------------------------
     \58\ Section 815.
     \59\ Section 815(b).
---------------------------------------------------------------------------


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

     Reduction in deductions for policyholder dividends and 
         reserves of mutual life insurance companies (sec. 809)
       The conference agreement repeals the rules requiring 
     reduction in certain deductions of mutual life insurance 
     companies (sec. 809) for taxable years beginning after 
     December 31, 2000.
       Effective date.--The repeal is effective for taxable years 
     beginning after December 31, 2000.
     Distributions to shareholders from policyholders surplus 
         account (sec. 815)
       The conference agreement repeals the rules relating to 
     distributions to shareholders from the policyholders surplus 
     account of a life insurance company (sec. 815) for taxable 
     years beginning after December 31, 2000.
       Effective date.--The repeal is effective for taxable years 
     beginning after December 31, 2000.

  C. Tax-Credit Bonds for the National Railroad Passenger Corporation 
(``Amtrak'') and the Alaska Railroad (sec. 713 of the bill and new sec. 
                            54 of the Code)


                              Present Law

       Present law does not authorize the issuance by any private, 
     for-profit corporation of bonds the interest on which is tax-
     exempt or eligible for an income tax credit. Tax-exempt bonds 
     may be issued by States or local governments to finance their 
     governmental activities or to finance certain capital 
     expenditures of private businesses or loans to individuals. 
     Additionally, States or local governments may issue tax-
     credit bonds to finance the operation of ``qualified zone 
     academies.''
     Tax-exempt bonds
       Interest on bonds issued by States or local governments to 
     finance direct activities of those governmental units is 
     excluded from tax (sec. 103). In addition, interest on 
     certain bonds (``private activity bonds'') issued by States 
     or local governments acting as conduits to provide financing 
     for private businesses or individuals is excluded from income 
     if the purpose of the borrowing is specifically approved in 
     the Code (sec. 141). Examples of approved private activities 
     for which States or local governments may provide tax-exempt 
     financing include transportation facilities (airports, ports, 
     mass commuting facilities, and certain high speed intercity 
     rail facilities); public works facilities such as water, 
     sewer, and solid waste disposal; and certain social welfare 
     programs such as low-income rental housing, student loans, 
     and mortgage loans to certain first-time homebuyers. High 
     speed intercity rail facilities eligible for tax-exempt 
     financing include land, rail, and stations (but not rolling 
     stock) for fixed guideway rail transportation of passengers 
     and their baggage using vehicles that are reasonably expected 
     to operate at speeds in excess of 150 miles per hour between 
     scheduled stops.
       Issuance of most private activity bonds is subject to 
     annual State volume limits of $50 per resident ($150 million 
     if greater). These volume limits are scheduled to increase to 
     $75 per resident ($225 million if greater) over the period 
     2003 through 2007.
       Investment earnings on all tax-exempt bonds, including 
     earnings on invested sinking funds associated with such bonds 
     is restricted by the Code to prevent the issuance of bonds 
     earlier or in a greater amount than necessary for the purpose 
     of the borrowing. In general, all profits on investment of 
     such proceeds must be rebated to the Federal Government. 
     Interest on bonds associated with invested sinking funds is 
     taxable.
     Tax-credit bonds for qualified zone academies
       As an alternative to traditional tax-exempt bonds, certain 
     States or local governments are given authority to issue 
     ``qualified zone academy bonds.'' A total of $400 million of 
     qualified zone academy bonds is authorized to be issued in 
     each year of 1998 through 2001. The $400 million is allocated 
     to States according to their respective populations of 
     individuals below the poverty line.
       Qualified zone academy bonds are taxable bonds with respect 
     to which the investor receives an income tax credit equal to 
     an assumed interest rate set by the Treasury Department to 
     allow issuance of the bonds without discount and without 
     interest cost to the issuer. The bonds may be used for 
     renovating, providing equipment to, developing course 
     materials for, or training teachers in eligible schools. 
     Eligible schools are elementary and secondary schools with 
     respect to which private entities make contributions equaling 
     at least 10 percent of the bond proceeds.
       Only financial institutions are eligible to claim the 
     credits on qualified zone academy bonds. The amount of the 
     credit is taken into income. The credit may be claimed 
     against both regular income tax and AMT liability.
       There are no arbitrage restrictions applicable to 
     investment earnings on qualified zone academy bond proceeds.


                               House Bill

       No provision.


                            Senate Amendment

       No provision, but S. 3152, authorizes the National Railroad 
     Passenger Corporation (``Amtrak'') and the Alaska Railroad to 
     issue an aggregate amount of $10 billion of tax-credit bonds 
     to finance its capital projects. Annual issuance of the bonds 
     may not exceed $1 billion per year (plus any authorized 
     amount that was not issued in previous years) during the ten 
     Fiscal Year period, 2001-2010. Unused bond authority could be 
     carried forward to succeeding years until used, subject to a 
     limitation that no tax-credit bonds could be issued after 
     fiscal year 2015.
       Projects eligible for tax-credit bond financing are defined 
     as the acquisition, construction of equipment, rolling stock, 
     and other capital improvements for (1) the northeast rail 
     corridor between Washington, D.C. and Boston, Massachusetts; 
     60 (2) high-speed rail corridors designated under 
     section 104(d)(2) of Title 23 of the United States Code; and 
     (3) other intercity passenger rail corridors, including 
     station rehabilitation or construction, track or signal 
     improvements, or grade crossing elimination. Item 3 is 
     limited to a maximum of 10 percent of the proceeds of any 
     bond issue. At least 70 percent of the authorized tax-credit 
     bonds must be issued for projects described in (2) and (3). 
     No more than $3 billion of the bonds may be designated for 
     any one high-speed rail corridor.
---------------------------------------------------------------------------
     \60\ $92 million of Amtrak's tax-credit bond authority for 
     Northeast Corridor projects is set aside for the acquisition 
     and installation of platform facilities, performance of 
     railroad force account work necessary to complete 
     improvements below grade, and any other necessary 
     improvements related to construction at the new railroad 
     station at the James A. Farley Post Office Building in New 
     York City. Projects finance with this $92 million of tax-
     credit bonds are not subject to the Senate contribution 
     requirement, described below.
---------------------------------------------------------------------------
       As with qualified zone academy bonds, the interest rate on 
     Amtrak/Alaska Railroad tax-credit bonds will be set to allow 
     issuance of the bonds at par, i.e., without any interest cost 
     to Amtrak or the Alaska Railroad. In general, proceeds of 
     Amtrak/Alaska Railroad tax-

[[Page H11008]]

     credit bonds would have to be spent within 36 months after 
     the bonds are issued. As of the date the bonds were 
     issued, Amtrak or the Alaska Railroad must certify that it 
     reasonably expects--
       (1) to incur a binding obligation with a third party to 
     spend at least 10 percent of the bond proceeds within six 
     months (or in the case of self-constructed property, to have 
     commenced construction or preliminary engineering studies 
     within six months);
       (2) to spend the bond proceeds with due diligence; and
       (3) to spend at least 95 percent of the proceeds for 
     qualifying capital costs within three years.
       Amtrak/Alaska Railroad tax-credit bonds may only be issued 
     for projects that are approved by the Department of 
     Transportation and, in the case of Amtrak, with respect to 
     which there are binding commitments from one or more States 
     to make matching contributions of at least 20 percent of the 
     project cost. Projects having State matching contributions in 
     excess of 20 percent are given a preference. The State 
     matching contributions, along with earnings on investment of 
     the tax-credit bond proceeds must be invested in a trust 
     account (i.e., a sinking fund) and used along with earnings 
     on the trust account for repayment of the principal amount of 
     the bonds.
       Amtrak/Alaska Railroad tax-credit bonds can be owned (and 
     income tax credits claimed) by any taxpayer. The amount of 
     the credit will be included in the bondholder's income. 
     Additionally, provisions are included in the proposal to 
     allow the credits to be stripped and sold to different 
     investors than the investors in the bond principal.
       The required State matching contribution may not be derived 
     from Federal monies. Any Federal Highway Trust Fund monies 
     transferred to the States are treated as Federal monies for 
     this purpose. During the period when tax-credit bonds are 
     authorized, Amtrak and the Alaska Railroad are not allowed to 
     receive any Highway Trust Fund monies other than those 
     authorized on the date of the provision's enactment.
       Amtrak is required annually to submit a five-year capital 
     plan to Congress, and to satisfy independent oversight 
     requirements with respect to the management of tax-credit-
     bond-financed projects. Finally, the Treasury Department is 
     required to certify annually that funds deposited in the 
     escrow accounts for repayment of tax-credit bonds issued by 
     Amtrak (with actual and projected earnings thereon) are 
     sufficient to ensure full repayment of the bond principal.
       Effective date.--The provision is effective for tax credit 
     bonds issued by Amtrak or the Alaska Railroad after September 
     30, 2000.


                          conference agreement

       The conference agreement follows the Senate amendment, with 
     several modifications and clarifications.
       First, the expenditure requirements applicable to these tax 
     credit bonds are modified to add an actual expenditure 
     requirement to the Senate amendment's reasonable expectations 
     test. Under the actual expenditure requirement, unless at 
     least 95 percent of the bond proceeds is spent within 3 years 
     after the bonds are issued, unspent proceeds must be used to 
     redeem bonds within 90 days after the end of the period. An 
     exception allows the expenditure period to be extended to 
     four years if (1) at least 75 percent of the proceeds are 
     spent within the initial three year period, (2) the issuer 
     has proceeded with due diligence to spend the proceeds within 
     the initial three-year period, and (3) the issuer pays to the 
     Federal Government all earnings on unspent proceeds that 
     accrue after the end of the initial three-year period. If the 
     issuer qualifies for the exception, but fails to satisfy its 
     spending requirements, unspent proceeds must be used to 
     redeem bonds within 90 days after the end of the four-year 
     period.
       Second, the definition of qualified expenditures is 
     modified to preclude the use of bond proceeds to refinance 
     outstanding debt except for ``bridge'' and similar financing 
     incurred for a qualified project pending issuance of tax-
     credit bonds. Qualified bridge financing is defined as 
     financing that (1) is issued after the date of enactment of 
     the provision, (2) has a term of not more than three years, 
     (3) is used to finance or acquire capital improvements that 
     qualify for tax-credit bond financing, and (4) is issued in 
     anticipation of being refinanced with proceeds of tax-credit 
     bonds.
       Third, provisions are added requiring that tax-credit-bond-
     financed property be continuously used for a qualified 
     purpose throughout the term of the bonds.
       Fourth, clarification is provided that the use of tax-
     credit bond proceeds to redeem bonds (except as required 
     above and except with regard to not more than five percent of 
     the bond proceeds) is not a qualified expenditure. A further 
     modification allows Amtrak to treat as a qualified project 
     expenditure, expenditure of not more than 0.5 percent of bond 
     proceeds for costs of complying with the oversight 
     requirements imposed on that railroad by the conference 
     agreement.
       Fifth, clarification is provided that the tax credit rate 
     is determined on the date the bonds are sold (rather than the 
     actual issuance date, if different).
       Sixth, the Senate amendment is modified to require actual 
     deposit in to the Trust Account securing repayment of the 
     bonds of the required State contributions before any tax-
     credit bonds are issued.
       Seventh, for bonds issued by Amtrak, the Senate amendment 
     is modified to require (in addition to approval by the 
     Secretary of Transportation) a finding by the Inspector 
     General of the Department of Transportation that there is ``a 
     reasonable likelihood'' that the proposed projects will 
     result ``in a positive incremental financial 
     contribution'' to Amtrak and to specify criteria to be 
     used in making this determination.
       Return on investment.--The measurements used to evaluate 
     the amount of return on investment shall include (1) the 
     positive incremental financial contribution to Amtrak, 
     including all system-wide impacts and (2) the value of the 
     net cash flow to Amtrak produced over the life of the 
     program, discounted to current dollars. Such net cash flow 
     should take into consideration operating efficiencies 
     produced as a result of the total capital investment as well 
     as incremental passenger related, mail and express, State and 
     other revenue as a result of the total capital investment.
       Leveraging of funds.--The measurements used to evaluate the 
     leveraging of funds shall include (1) the amount of public 
     and private match provided for the program, (2) the 
     percentage of public and private match provided for the 
     program relative to Amtrak's contribution and (3) the 
     stability or reliability of state and local capital and 
     operating support.
       Cost effectiveness.--The measurement used to evaluate cost 
     effectiveness is the incremental cost to Amtrak per 
     incremental passenger or the incremental cost to Amtrak per 
     incremental revenue generated as a result of the capital 
     investment.
       Safety improvement.--The measurements used to evaluate 
     safety improvement shall include (1) the prevention or 
     reduction of customer or third party injuries and (2) the 
     prevention or reduction of employee injuries.
       Mobility improvement.--The measurements used to evaluate 
     the level of mobility improvement shall include (1) travel 
     time savings and (2) low income households served.
       Feasibility.--The measurements used to evaluate feasibility 
     shall include (1) timing of program implementation, (2) 
     technical feasibility and (3) likelihood of public and 
     private participation.
       Eighth, clarification is provided that the tax-credit bonds 
     are the obligation of the issuing railroad notwithstanding 
     the existence of the Trust Account securing their repayment. 
     As in the case of other tax-preferred debt, no implied 
     Federal Guarantee arises by virtue of the availability of tax 
     credits on these bonds.
       Ninth, the Senate amendment is modified to provide that 
     funds in the Trust Account that are not required to redeem 
     bonds may be used for additional qualified projects.

D. Farm, Fish, and Ranch Risk Management Accounts (``FFARRM Accounts'') 
          (sec. 714 of the bill and new sec. 468C of the Code)


                              present law

       There is no provision in present law allowing the elective 
     deferral of farm or fishing income.


                               house bill

       No provision.


                            senate amendment

       No provision. However, S. 3152 allows taxpayers engaged in 
     an eligible business to establish FFARRM accounts. An 
     eligible business is any trade or business of farming in 
     which the taxpayer actively participates, including the 
     operation of a nursery or sod farm or the raising or 
     harvesting of crop-bearing or ornamental trees. An eligible 
     business also is the trade or business of commercial fishing 
     as that term is defined under section (3) of the Magnuson-
     Stevens Fishery Conservation and Management Act (16 U.S.C. 
     1802) and includes the trade or business of catching, taking 
     or harvesting fish that are intended to enter commerce 
     through sale, barter or trade.
       Contributions to a FFARRM account are deductible and are 
     limited to 20 percent of the taxable income that is 
     attributable to the eligible business. The deduction is taken 
     into account in determining adjusted gross income and reduces 
     the income attributable to the eligible business for all 
     income tax purposes other than the determination of the 20 
     percent of eligible income limitation on contributions to a 
     FFARRM account. Contributions to a FFARRM account do not 
     reduce earnings from self-employment. Accordingly, 
     distributions are not included in self-employment income.
       A FFARRM account is taxed as a grantor trust and any 
     earnings are required to be distributed currently. Thus, any 
     income earned in the FFARRM account is taxed currently to the 
     farmer or fisherman who established the account. Amounts can 
     remain on deposit in a FFARRM account for up to five years. 
     Any amount that has not been distributed by the close of the 
     fourth year following the year of deposit is deemed to be 
     distributed and includible in the gross income of the account 
     owner.
       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.


                          conference agreement

       The conference agreement follows the provision of S. 3152.

   E. Extension and Modification of Enhanced Deduction for Corporate 
  Donations of Computer Technology (sec. 715 of the bill and sec. 170 
                          (e)(6) of the Code)


                              present law

       The maximum charitable contribution deduction that may be 
     claimed by a corporation for any one taxable year is limited 
     to 10

[[Page H11009]]

     percent of the corporation's taxable income for that year 
     (disregarding charitable contributions and with certain other 
     modifications) (sec. 170(b)(2)). Corporations also are 
     subject to certain limitations based on the type of property 
     contributed. In the case of a charitable contribution of 
     short-term gain property, inventory, or other ordinary income 
     property, the amount of the deduction generally is limited to 
     the taxpayer's basis (generally, cost) in the property. 
     However, special rules in the Code provide an augmented 
     deduction for certain corporate contributions. Under these 
     special rules, the amount of the augmented deduction is equal 
     to the lesser of (1) the basis of the donated property plus 
     one-half of the amount of ordinary income that would have 
     been realized if the property had been sold, or (2) twice the 
     basis of the donated property.
       Section 170(e)(6) allows corporate taxpayers an augmented 
     deduction for qualified contributions of computer technology 
     and equipment (i.e., computer software, computer or 
     peripheral equipment, and fiber optic cable related to 
     computer use) to be used within the United States for 
     educational purposes in grades K-12. Eligible donees are: (1) 
     any educational organization that normally maintains a 
     regular faculty and curriculum and has a regularly enrolled 
     body of pupils in attendance at the place where its 
     educational activities are regularly carried on; and (2) tax-
     exempt charitable organizations that are organized primarily 
     for purposes of supporting elementary and secondary 
     education. A private foundation also is an eligible donee, 
     provided that, within 30 days after receipt of the 
     contribution, the private foundation contributes the property 
     to an eligible donee described above.
       Qualified contributions are limited to gifts made no later 
     than two years after the date the taxpayer acquired or 
     substantially completed the construction of the donated 
     property. In addition, the original use of the donated 
     property must commence with the donor or the donee. 
     Accordingly, qualified contributions generally are limited to 
     property that is no more than two years old. Such donated 
     property could be computer technology or equipment that is 
     inventory or depreciable trade or business property in the 
     hands of the donor.
       Donee organizations are not permitted to transfer the 
     donated property for money or services (e.g., a donee 
     organization cannot sell the computers). However, a donee 
     organization may transfer the donated property in furtherance 
     of its exempt purposes and be reimbursed for shipping, 
     installation, and transfer costs. For example, if a 
     corporation contributes computers to a charity that 
     subsequently distributes the computers to several elementary 
     schools in a given area, the charity could be reimbursed by 
     the elementary schools for shipping, transfer, and 
     installation costs.
       The special treatment applies only to donations made by C 
     corporations. S corporations, personal holding companies, and 
     service organizations are not eligible donors.
       The provision is scheduled to expire for contributions made 
     in taxable years beginning after December 31, 2000.


                               house bill

       No provision.


                            senate amendment

       No provision. However, S. 3152 includes a provision that 
     extends the current enhanced deduction for donations of 
     computer technology and equipment through December 31, 2003. 
     In addition, S. 3152 expands the enhanced deduction to 
     include donations to public libraries.
       Effective date.--The provision is effective upon the date 
     of enactment.


                          conference agreement

       The conference agreement follows S. 3152 with a 
     modification that qualified contributions include gifts made 
     no later than three years after the date the taxpayer 
     acquired or substantially completed the construction of the 
     donated property.
       Effective date.--The provision is effective for 
     contributions made after December 31, 2000.

   F. Settlement of Certain Discrimination Claims Brought by Farmers 
      Against the Department of Agriculture (sec. 716 of the bill)


                              Present Law

     Income tax
       Gross income means ``income from whatever source derived'' 
     except for certain items specifically excluded by 
     statute.61 Sources of income include compensation 
     for services, interest, dividends, capital gains, rents, 
     royalties, gross profits from a trade or business, income 
     from the discharge of indebtedness, and income from S 
     corporations, partnerships, trusts, and estates. In 
     determining taxable income, a taxpayer's gross income is 
     reduced by exemptions and deductions. Absent any applicable 
     exemption or exclusion, an amount received by an individual 
     in the settlement of a lawsuit generally is includible in 
     gross income.
---------------------------------------------------------------------------
     \61\ Section 61.
---------------------------------------------------------------------------


                               House Bill

       No provision. However, H.R. 2233 excludes from gross income 
     any cash received or cancellation of indebtedness income as a 
     result of the settlement of certain claims brought by certain 
     farmers against the Department of Agriculture for 
     discrimination in farm credit and benefit programs. The bill 
     further provides that such amounts are not included in the 
     gross estate of any qualified person for estate tax purposes. 
     Finally, the bill provides that these amounts are not to be 
     (1) considered income or resources in determining eligibility 
     for, (2) used to deny or reduce funds under, or (3) used as a 
     basis for determining the amount of assistance under, any 
     program funded in whole or in part with Federal funds. The 
     bill is limited to certified members of the plaintiff class 
     in the settlement of two consolidated class action suits. The 
     two suits are Pigford, et al. v. Glickman No. 97-1978 
     (D.D.C.)(PLF) and Brewington, et al. v. Glickman No. 98-1693 
     (D.D.C.)(PLF).
       Effective date.--The provision is effective after the date 
     of enactment.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement follows the provision of H.R. 
     2233, with modifications. The conference agreement provision 
     provides an exclusion of certain amounts from gross income 
     for purposes of Subtitle A of the Internal Revenue Code. This 
     exclusion applies to any (1) cash payment received before, 
     on, or after the date of enactment by or made on behalf of, a 
     person under the settlement of these two claims or (2) 
     cancellation of indebtedness income pursuant to the 
     settlement of these two claims. The conference agreement does 
     not include the provision of H.R. 2233 that provides an 
     exclusion of amounts from the gross estate of any qualified 
     person, for estate tax purposes. Further, the conference 
     agreement does not include the provision of H.R. 2233 
     providing that amounts are not to be (1) considered income or 
     resources in determining eligibility for, (2) used to deny or 
     reduce funds under, or (3) used as a basis for determining 
     the amount of assistance under, any program funded in whole 
     or in part with Federal funds.

G. Extension of the Adoption Tax Credit (sec. 717 of the bill and sec. 
                            23 of the Code)


                              Present Law

       Taxpayers are entitled to a maximum nonrefundable credit 
     against income tax liability of $5,000 per child for 
     qualified adoption expenses paid or incurred by the taxpayer 
     (sec. 23). In the case of a special needs adoption, the 
     maximum credit amount is $6,000. A special needs child is a 
     child who is a citizen or resident of the United States and 
     who the State has determined: (1) cannot or should not be 
     returned to the home of the birth parents, and (2) has a 
     specific factor or condition because of which the child 
     cannot be placed with adoptive parents without adoption 
     assistance. The adoption of a child who is not a citizen or a 
     resident of the United States is a foreign adoption.
       Qualified adoption expenses are reasonable and necessary 
     adoption fees, court costs, attorneys' fees, and other 
     expenses that are directly related to the legal adoption of 
     an eligible child. All reasonable and necessary expenses 
     required by a State as a condition of adoption are qualified 
     adoption expenses. Otherwise qualified adoption expenses paid 
     or incurred in one taxable year are not taken into account 
     for purposes of the credit until the next taxable year unless 
     the expenses are paid or incurred in the year the adoption 
     becomes final.
       An eligible child is an individual (1) who has not attained 
     age 18 or (2) who is physically or mentally incapable of 
     caring for himself or herself. After December 31, 2001, the 
     credit will be available only for special needs adoptions.
       No credit is allowed for expenses incurred (1) in violation 
     of State or Federal law, (2) in carrying out any surrogate 
     parenting arrangement, (3) in connection with the adoption of 
     a child of the taxpayer's spouse, (4) that are reimbursed 
     under an employer adoption assistance program or otherwise, 
     or (5) for a foreign adoption that is not finalized.
       The credit is phased out ratably for taxpayers with 
     modified AGI above $75,000, and is fully phased out at 
     $115,000 of modified AGI. For these purposes modified AGI is 
     computed by increasing the taxpayer's AGI by the amount 
     otherwise excluded from gross income under Code sections 911, 
     931, or 933.


                               House Bill

       No provision.


                            senate amendment

       No provision. However, S. 3152 extends the adoption credit 
     for the adoption of non- special needs children for two years 
     through December 31, 2003.
       Effective date.--The provision is effective on the date of 
     enactment.


                          Conference Agreement

       The conference agreement extends the credit for nonspecial 
     needs adoptions to include qualified adoption expenses paid 
     or incurred prior to December 31, 2005, and increases the 
     maximum credit by $1,000 per year beginning for taxable years 
     beginning after December 31, 2000 and until the maximum 
     credit reaches $10,000 per year for taxable years beginning 
     after December 31, 2004. In the case of special needs 
     adoptions, the maximum credit is increased by $2,000 per year 
     for taxable years beginning after December 31, 2000 until the 
     maximum credit reaches $12,000 per year for taxable years 
     beginning after December 31, 2002.
       Additionally, for taxable years beginning after December 
     31, 2000, the income limitation for the credit is increased 
     to $150,000 of modified AGI, and is phased out ratably for 
     taxpayers with modified AGI between $150,000 and $190,000.

[[Page H11010]]

       Effective date.--The provision is effective for taxable 
     years beginning after December 31, 2000.

 H. Study of Tax Treatment with respect to Certain Offshore Insurance 
                    Companies (sec. 718 of the bill)


                              Present Law

       Under present law, under the rules of subchapter L of the 
     Code, a life insurance company is subject to tax on its life 
     insurance company taxable income. Similarly, a property and 
     casualty insurance company is subject to tax on its taxable 
     income, which is calculated by taking into account the 
     company's underwriting income and investment income, as well 
     as gains and other income items. An insurance company may 
     enter into a reinsurance contract or agreement with another 
     insurer, whereby risks, or portions of risks, are transferred 
     from one insurer to another or are shared or allocated among 
     insurers.
       Present law provides rules governing allocation in the case 
     of reinsurance agreements that involve tax avoidance or 
     evasion. Under this rule, in the case of two or more related 
     persons that are parties to a reinsurance agreement (or an 
     agent of a party to a reinsurance agreement), the Treasury 
     Secretary may allocate between or among such persons income 
     (whether investment income, premium or otherwise), 
     deductions, assets, reserves, credits, and other items 
     related to the agreement. The Treasury Secretary may also 
     recharacterize any such items or make any other adjustment. 
     The Secretary may make the allocation, recharacterization or 
     adjustment if he determines that it is necessary to reflect 
     the proper source and character of the taxable income (or 
     other item) of each related person or agent.62
---------------------------------------------------------------------------
     \62\ H.R. 4192 (106th Cong., 2d. Sess.,) introduced April 5, 
     2000, would modify these rules relating to reinsurance 
     transactions. That bill would provide that if a domestic 
     person directly or indirectly reinsurances a U.S. risk with a 
     related foreign reinsurer, then the investment income of the 
     domestic person would be increased by the product of (1) the 
     reserves or liabilities related to the U.S. risk ceded to the 
     foreign reinsurer, and (2) the average applicable Federal 
     mid-term rate.
---------------------------------------------------------------------------
       Other rules also provide for the allocation of income and 
     deductions among taxpayers. In any case of two or more 
     organizations owned or controlled directly or indirectly by 
     the same interests, the Treasury Secretary may distribute, 
     apportion, or allocate gross income, deductions, credits, or 
     allowances between or among the organizations, if he 
     determines that it is necessary in order to prevent evasion 
     of taxes or clearly to reflect the income of the 
     organizations.


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement provides that the Secretary of the 
     Treasury is to conduct a study on the extent to which U. S. 
     tax on investment income of U.S. insurance companies is being 
     avoided through the use of affiliated corporations in Bermuda 
     or other offshore locations. In conducting the study, the 
     Treasury Secretary is to address issues concerning the 
     application of current U.S. tax law in preventing such 
     avoidance, changes to U.S. tax law that may be needed to 
     prevent such avoidance, and is to make appropriate 
     recommendations. The Treasury Secretary is to submit the 
     study and recommendations to the House Committee on Ways and 
     Means and the Senate Committee on Finance no later than 
     December 31, 2001.

I. Treatment of Indian Tribes as Non-Profit Organizations and State or 
    Local Governments for Purposes of the Federal Unemployment Tax 
      (``FUTA'') (sec. 719 of the bill and sec. 3306 of the Code)


                              Present Law

       Present law imposes a net tax on employers equal to 0.8 
     percent of the first $7,000 paid annually to each employee. 
     The current gross FUTA tax is 6.2 percent, but employers in 
     States meeting certain requirements and having no delinquent 
     loans are eligible for a 5.4 percent credit making the net 
     Federal tax rate 0.8 percent. Both non-profit organizations 
     and State and local governments are not required to pay FUTA 
     taxes. Instead they may elect to reimburse the unemployment 
     compensation system for unemployment compensation benefits 
     actually paid to their former employees. Generally, Indian 
     tribes are not eligible for the reimbursement treatment 
     allowable to non-profit organizations and State and local 
     governments.


                               House Bill

       No provision.


                            Senate Amendment

       No provision. However, S. 3152 provides that an Indian 
     tribe (including any subdivision, subsidiary, or business 
     enterprise chartered and wholly owned by an Indian tribe) is 
     treated like a non-profit organization or State or local 
     government for FUTA purposes (i.e., given an election to 
     choose the reimbursement treatment).
       Effective date.--The provision generally is effective with 
     respect to service performed beginning on or after the date 
     of enactment. Under a transition rule, service performed in 
     the employ of an Indian tribe is not treated as employment 
     for FUTA purposes if: (1) it is service which is performed 
     before the date of enactment and with respect to which FUTA 
     tax has not been paid; and (2) such Indian tribe reimburses a 
     State unemployment fund for unemployment benefits paid for 
     service attributable to such tribe for such period.


                          Conference Agreement

       The conference agreement follows the provision of S. 3152.

                 Subtitle C. Tax Technical Corrections


                               House Bill

       No provision.


                            Senate Amendment

       No provision.


                          Conference Agreement

       The conference agreement includes tax technical 
     corrections.63 Except as otherwise provided, the 
     technical corrections contained in the bill generally are 
     effective as if included in the originally enacted related 
     legislation. The provisions under the IRS Restructuring Act 
     of 1998 relating to innocent spouse and to procedural and 
     administrative issues (other than the provision relating to 
     clarification of Tax Court authority to issue appealable 
     decisions) are effective upon the date of enactment of the 
     bill.
---------------------------------------------------------------------------
     \63\ In addition to other tax technical corrections, the bill 
     contains the technical corrections contained in H.R. 2488, 
     the Financial Freedom Act of 1999 (106th Cong., 1st Sess., 
     reported by the House Committee on Ways and Means, H. Rept. 
     106-238, July 16, 1999, 393-397), as passed by the House, and 
     S. 1429, the Taxpayer Refund Act of 1999 (reported by the 
     Senate Committee on Finance, S. Rept. 106-120, July 23, 1999, 
     221-225), as passed by the Senate. (The technical corrections 
     were not included in the conference agreement to H.R. 2488, 
     the Taxpayer Refund and Relief Act of 1999 (106th Cong., 1st 
     Sess., H. Rept. 106-289, Aug. 4, 1999, 542-543). The Taxpayer 
     Refund and Relief Act of 1999 was vetoed by President 
     Clinton.) However, the bill does not include the following 
     provisions enacted in other legislation: sections 1601(b)(2) 
     and (c) of H.R. 2488 (and section 504(c) of S. 1429), 
     relating to the Vaccine Trust Fund, which were enacted in the 
     ``Ticket to Work and Work Incentives Improvement Act of 
     1999'' (P.L. 106-170, sec. 523(b)).
---------------------------------------------------------------------------
     Amendments Relating to the Ticket to Work and Work Incentives 
         Improvement Act of 1999 (sec. 721 of the bill)
       Research credit.--The provision clarifies the anti-double 
     dip rule coordinating the research credit (sec. 41) and the 
     Puerto Rico economic activity credit (sec. 30A). It is 
     arguable that the present-law provisions could be construed 
     so that the amount of wages on which a taxpayer could claim 
     the section 30A credit is reduced only by the amount of 
     credit claimed under section 41, rather than by the amount of 
     wages upon which the section 41 credit is based. This result 
     is inconsistent with the legislative history of the original 
     provisions. The provision deletes the words ``or credit'' 
     after ``deduction'' in section 280C(c)(1), and adds a new 
     subsection in section 30A specifying that wages or other 
     expenses taken into account for section 30A may not be taken 
     into account for section 41.
       Taxable REIT subsidiaries.--The provision clarifies that a 
     REIT's redetermined rents (described in sec. 857(b)(7)(B)) 
     that are subject to tax under section 857(b)(7)(A) do not 
     include amounts received from a taxable REIT subsidiary that 
     would be excluded from unrelated business taxable income 
     (under sec. 512(b)(3), relating to certain rents, if received 
     by certain types of organizations described in sec. 
     511(a)(2)).
       Partnership basis adjustments.--The provision provides that 
     the rule in the consolidated return regulations (Treas. Reg. 
     sec. 1.1502-34) aggregating stock ownership for purposes of 
     section 332 (relating to complete liquidation of a subsidiary 
     that is a controlled corporation) also applies for purposes 
     of section 732(f) (relating to basis adjustments to assets of 
     a controlled corporation received in a partnership 
     distribution).
     Amendments related to the Tax and Trade Relief Extension Act 
         of 1998 (sec. 722 of the bill)
       Exempt organizations.--The provision clarifies that 
     nonexempt charitable trusts and nonexempt private foundations 
     are subject to the public disclosure requirements of section 
     6104(d).
       Capital gains.--The provision clarifies that if (1) a 
     charitable remainder trust sold section 1250 property after 
     July 28, 1997, and before January 1, 1998, (2) the property 
     was held more than one year but not more than 18 months, and 
     (3) the capital gain is distributed after December 31, 1997, 
     then any capital gain attributable to depreciation will be 
     taxed at 25 percent (rather than 28 percent). Treasury has 
     published a notice (Notice 99-17, 1999-14 I.R.B., April 5, 
     1999) providing that the gain is taxed at 25 percent.
     Amendments related to the Internal Revenue Service 
         Restructuring and Reform Act of 1998 (sec. 723 of the 
         bill)
       Innocent spouse
       Timing of request for relief.--Confusion currently exists 
     as to the appropriate point at which a request for innocent 
     spouse relief should be made by the taxpayer and considered 
     by the IRS. Some have read the statute to prohibit 
     consideration by the IRS of requests for relief until after 
     an assessment has been made, i.e., after the examination has 
     been concluded, and if challenged, judicially determined. 
     Others have read the statute to permit claims for relief from 
     deficiencies to be made upon the filing of the return before 
     any preliminary determination as to whether a deficiency 
     exists or whether the return will be examined. The 
     consideration of innocent spouse relief requires that the IRS 
     focus on the particular items causing a deficiency; until 
     such items are identified, the IRS cannot consider these 
     claims.

[[Page H11011]]

     Congress did not intend that taxpayers be prohibited from 
     seeking innocent spouse relief until after an assessment has 
     been made; Congress intended the proper time to raise and 
     have the IRS consider a claim to be at the same point where a 
     deficiency is being considered and asserted by the IRS. This 
     is the least disruptive for both the taxpayer and the IRS 
     since it allows both to focus on the innocent spouse issue 
     while also focusing on the items that might cause a 
     deficiency. It also permits every issue, including the 
     innocent spouse issue, to be resolved in single 
     administrative and judicial process. The bill clarifies the 
     intended time by permitting the election under (b) and (c) to 
     be made at any point after a deficiency has been asserted by 
     the IRS. A deficiency is considered to have been asserted by 
     the IRS at the time the IRS states that additional taxes may 
     be owed. Most commonly, this occurs during the Examination 
     process. It does not require an assessment to have been made, 
     nor does it require the exhaustion of administrative remedies 
     in order for a taxpayer to be permitted to request innocent 
     spouse relief.
       Allowance of refunds.--The current placement in the statute 
     of the provision for allowance of refunds may inappropriately 
     suggest that the provision applies only to the United States 
     Tax Court, whereas it was intended to apply administratively 
     and in all courts. The bill clarifies this by moving the 
     provision to its own subsection.
       Non-exclusivity of judicial remedy.--Some have suggested 
     that the IRS Restructuring Act administrative and judicial 
     process for innocent spouse relief was intended to be the 
     exclusive avenue by which relief could be sought. The bill 
     clarifies Congressional intent that the procedures of section 
     6015(e) were intended to be additional, non-exclusive avenues 
     by which innocent spouse relief could be considered.
       Time for filing a petition with the Tax Court.--As enacted, 
     the time period for seeking a redetermination in the Tax 
     Court of innocent spouse relief begins on the date of the 
     determination as opposed to the day after the determination. 
     This period is one day shorter than that generally applicable 
     to petition the Tax Court with respect to a deficiency notice 
     (sec. 6213) and the period during which collection activities 
     are prohibited and the limitations period is suspended. The 
     bill clarifies the computation of this period and conforms it 
     to the generally applicable 90-day period for petitioning the 
     Tax Court. Conforming amendments are made as to the period 
     for which collection activities are prohibited and collection 
     limitations suspended.
       Waiver of final determination upon agreement as to 
     relief.--Congress intended in enacting section 6015 to 
     provide a simple and efficient procedure by which the IRS 
     could consider relief, and if relief was denied (in whole or 
     in part) and the spouse requesting such relief did not agree 
     with such denial, such issue could be considered by the Tax 
     Court. Congress did not intend to require a rigid formal 
     process when the IRS and the spouse requesting relief agreed 
     on the extent of relief to be granted. However, the 
     provisions of section 6015(e) have been interpreted as 
     requiring the issuance in all circumstances of a formal 
     ``Notice of Determination,'' which contains a statement of 
     the time period within which a petition may be filed with the 
     Tax Court and which delays final resolution of the request 
     for relief until the expiration of the period for filing a 
     petition with the Tax Court. The issuance of the Notice of 
     Determination is confusing to the taxpayer when the requested 
     relief was fully granted or when the IRS and the taxpayer 
     otherwise agreed on the application of the innocent spouse 
     provisions to the taxpayer's case. It also may cause 
     unnecessary filings with the Tax Court and delay the closing 
     of the case until the time for filing with the Tax Court 
     expires.
       Congress has addressed the analogous situation in the 
     deficiency context in section 6213(d). In such situations, 
     upon written agreement, the IRS may adjust the taxpayer's 
     liability as agreed, and no additional formal notice is 
     necessary. The bill reflects that an analogous waiver was 
     intended to apply in the innocent spouse context. The bill 
     consequently permits taxpayers and the IRS to enter into a 
     similar written agreement in innocent spouse cases, which 
     allows for the taxpayer's liability to be immediately 
     adjusted as agreed, and makes unnecessary a formal Notice 
     of Determination or Tax Court review. This written 
     agreement is to specify the details of the agreement 
     between the IRS and the taxpayer as to the nature and 
     extent of innocent spouse relief that will be provided. 
     Conforming amendments are made as to the period for which 
     collection activities are prohibited and collection 
     limitations suspended.
       Procedural and administrative issues
       Disputes involving $50,000 or less.--The provision 
     clarifies that the small case procedures of the Tax Court are 
     available with respect to innocent spouse disputes and 
     disputes continuing from the pre-levy administrative due 
     process hearing. The small case procedures provide an 
     accessible forum for taxpayers who have small claims with 
     less formal rules of evidence and procedure. Use of the 
     procedure is optional to the taxpayer, with the concurrence 
     of the Tax Court. In view of the recent enactment of the 
     innocent spouse and pre-levy administrative due process 
     hearing provisions, it is anticipated that the Tax Court will 
     give careful consideration to (1) a motion by the 
     Commissioner of Internal Revenue to remove the small case 
     designation (as authorized by Rules 172 and 173 of the Tax 
     Court Rules) when the orderly conduct of the work of the 
     Court or the administration of the tax laws would be better 
     served by a regular trial of the case, as well as (2) the 
     financial impact upon the taxpayer, including additional 
     legal fees and costs, of not utilizing small case treatment. 
     For example, removing the small case designation may be 
     appropriate when a decision in the case will provide a 
     precedent for the disposition of a substantial number of 
     other cases. It is anticipated that motions by the 
     Commissioner to remove the small case designation will be 
     made infrequently.
       Authority to enjoin collection actions.--While a dispute is 
     pending under the pre-levy administrative due process hearing 
     procedures, levy action is statutorily suspended for that 
     period. The Tax Court and district courts are expressly 
     granted authority to enjoin improper levy action in general, 
     but that authority does not explicitly extend to improper 
     levy action that occurs during the period when levy action is 
     statutorily suspended under the administrative due process 
     provisions. The provision clarifies the ability of the courts 
     (including the Tax Court) to enjoin levy during the period 
     that levy is required to be suspended with respect to a 
     dispute under the pre-levy administrative due process hearing 
     procedures.
       Clarification of permissible extension of limitations 
     period for installment agreements.--Uncertainty exists as to 
     whether the permissible extension of the period of 
     limitations in the context of installment agreements is 
     governed by reference to an agreement of the parties pursuant 
     to section 6502 or by reference to the period of time during 
     which the installment agreement is in effect pursuant to 
     sections 6331(k)(3) and (i)(5). The provision clarifies that 
     the permissible extension of the period of limitations in the 
     context of installment agreements is governed by the 
     pertinent provisions of section 6502.
       Clarification of Tax Court authority to issue appealable 
     decisions.--The statutory provision for judicial review of a 
     dispute concerning the pre-levy administrative due process 
     hearing may be unclear as to whether a determination of the 
     Tax Court is an appealable decision. The provision clarifies 
     that the determination of the Tax Court (other than under the 
     small case procedures) in a dispute concerning the pre-levy 
     administrative due process hearing is a decision of the Tax 
     Court and would be reviewable as such.
       Other issues
       IRS restructuring.--When the Office of the Chief Inspector 
     was replaced by the Treasury Inspector General for Tax 
     Administration (TIGTA) under the IRS Restructuring and Reform 
     Act of 1998, Inspection's responsibilities were assigned to 
     the TIGTA. TIGTA personnel are Treasury, rather than IRS, 
     personnel. TIGTA personnel still need to make investigative 
     disclosures to carry out the duties they took over from 
     Inspection and their additional tax administration 
     responsibilities. However, section 6103(k)(6) refers only to 
     ``internal revenue'' personnel. The provision clarifies that 
     section 6103(k)(6) permits TIGTA personnel to make 
     investigative disclosures.
       Compliance.--Section 3509 of the IRS Restructuring and 
     Reform Act of 1998 expanded the disclosure rules of section 
     6110 to also cover Chief Counsel advice (sec. 6110(i)). This 
     is a conforming change related to ongoing investigations. The 
     provision adds to section 6110(g)(5)(A), after the words 
     technical advice memorandum, ``or Chief Counsel advice.''
     Amendments related to the Taxpayer Relief Act of 1997 (sec. 
         724 of the bill)
       Deficiency created by overstatement of refundable child 
     credit.--The provision treats the refundable portion of the 
     child credit under section 24(d) as part of a ``deficiency.'' 
     Thus, the usual assessment procedures applicable to income 
     taxes will apply to both the nonrefundable and the refundable 
     portions of the child credit. (This will reverse the 
     conclusion reached by Internal Revenue Service Chief Counsel 
     Memorandum 199948027 interpreting present law.)
       Roth IRAs.--Code section 3405 provides for withholding with 
     respect to designated distributions from certain tax-favored 
     arrangements, including IRAs. In general, section 
     3405(e)(1)(B)(ii) excludes from the definition of a 
     designated distribution the portion of any distribution which 
     it is reasonable to believe is excludable from gross income. 
     However, all distributions from IRAs are treated as 
     includible in income. The exception was consistent with prior 
     law when all IRA distributions were taxable, but does not 
     account for the tax-free nature of certain Roth IRA 
     distributions. The provision extends the exception to Roth 
     IRAs.
       Capital gain election.--The provision provides that an 
     election to recognize gain or loss made pursuant to section 
     311(e) of the Taxpayer Relief Act of 1997 does not apply to 
     assets disposed of in a recognition transaction within one 
     year of the date the election would otherwise have been 
     effective. Thus, for example, if an asset is sold in 2001, no 
     election may be made with respect to that asset. In addition, 
     it is clarified that the deemed sale and repurchase by reason 
     of the election is not taken into account in applying the 
     wash sale rules of section 1091.
       Straight-line depreciation under AMT.--The provision 
     clarifies that the Taxpayer Relief Act of 1997 did not change 
     the requirement that the straight-line method of depreciation 
     be used in computing the alternative minimum tax (``AMT'') 
     depreciation allowance

[[Page H11012]]

     for section 1250 property. It is arguable that the changes 
     made by that Act could be read as inadvertently 
     allowing accelerated depreciation under the AMT for 
     section 1250 property which is allowed accelerated 
     depreciation under the regular tax.
       Transportation benefits.--Under present law, salary 
     reduction amounts are generally treated as compensation for 
     purposes of the limits on contributions and benefits under 
     qualified plans. In addition, an employer can elect whether 
     or not to include such amounts for nondiscrimination testing 
     purposes. The IRS Reform Act permitted employers to offer a 
     cash option in lieu of qualified transportation benefits. The 
     provision treats salary reduction amounts used for qualified 
     transportation benefits the same as other salary reduction 
     amounts for purposes of defining compensation under the 
     qualified plan rules.
       Tax Court jurisdiction.--The Tax Court recently held that 
     its jurisdiction pursuant to section 7436 extends only to 
     employment status, not to the amount of employment tax in 
     dispute (Henry Randolph Consulting v. Comm'r, 112 T.C. #1, 
     Jan. 6, 1999). The provision provides that the Tax Court also 
     has jurisdiction over the amount.
     Amendments related to the Balanced Budget Act of 1997 (sec. 
         725 of the bill)
       Tobacco floor stocks tax.--The provision clarifies that the 
     floor stocks taxes imposed on January 1, 2000, and January 1, 
     2002, apply only to cigarettes rather than to all tobacco 
     products. As enacted, the law could be construed as 
     ambiguous, referring to imposition on all tobacco products 
     but imposing liability only with respect to cigarettes.
       Tobacco excise tax.--Conforming amendments are provided to 
     two provisions to reflect the fact that the tax on cigarette 
     papers is not imposed on ``books'' of papers since January 1, 
     2000.
       Coordination of trade rules and tobacco excise tax.--
     Clarification is provided that the penalty on reimporting 
     cigarettes other than for return to a manufacturer (effective 
     January 1, 2000) does not apply to cigarettes re-imported by 
     individuals to the extent those cigarettes can be entered 
     into the U.S. without duty or tax under the Harmonized Tariff 
     Schedule.
     Amendment related to the Small Business Job Protection Act of 
         1996 (sec. 726 of the bill)
       Work opportunity tax credit.--Section 51(d)(2) refers to 
     eligibility for the work opportunity tax credit with respect 
     to certain welfare recipients without taking into account the 
     enactment of the temporary assistance for needy families 
     (``TANF'') program. The provisions conform references in the 
     work opportunity tax credit to the operation of TANF.
       Electing small business trusts holding S corporation 
     stock.--The provision allows an electing small business trust 
     (sec. 1361(e)) to have an organization described in section 
     170(c)(1) (relating to State and local governments) as a 
     beneficiary if the organization holds a contingent interest 
     and is not a potential current beneficiary.
       Definition of lump-sum distribution.--Section 1401(b) of 
     the Small Business Job Protection Act of 1996 Act repealed 5-
     year averaging for lump-sum distributions. The definition of 
     lump-sum distribution was preserved for other provisions, 
     primarily those relating to NUA in employer securities. The 
     definition was moved from section 402(d)(4)(A) to section 
     402(e)(4)(D)(i). This definition included the following 
     sentence: ``A distribution of an annuity contract from a 
     trust or annuity plan referred to in the first sentence of 
     this subparagraph shall be treated as a lump sum 
     distribution.'' The provision adds this language back into 
     the definition of lump-sum distribution. The sentence is 
     relevant to section 401(k)(10)(B), which permits certain 
     distributions if made as a ``lump-sum distribution.''
       IRAs for nonworking spouses.--Section 1427 of the Small 
     Business Job Protection Act of 1996 expanded the IRA 
     deduction for nonworking spouses. The maximum permitted IRA 
     contributions is generally limited by the individual's earned 
     income. However, under present law, it is possible for a 
     nonworking (or lesser earning) spouse to make IRA 
     contributions in excess of the couple's combined earned 
     income. The following example illustrates present law.
       Example: Suppose H and W retire in the middle of January, 
     1999. In that year, H earns $1,000 and W earns $500. Both are 
     active participants in an employer-sponsored retirement plan. 
     Their modified AGI is $60,000. They make no Roth IRA 
     contributions. Before application of the income phase-out 
     rules, the maximum deductible IRA contribution that H can 
     make is $1,000 (sec. 219(b)(1)). After application of the 
     income phase-out rule in section 219(g), H's maximum 
     contribution is $200, and H contributes that amount to an 
     IRA. Under 408(o)(2)(B), H can make nondeductible 
     contributions of $800 ($1,000-$200).
       W's maximum permitted deductible contribution under section 
     219(c)(1)(B), before the income phase-out, is $1,300 (the sum 
     of H and W's earned income ($1,500), less H's deductible IRA 
     contribution ($200)). Under the income phase-out, W's 
     deductible contribution is limited to $200, and she can make 
     a nondeductible contribution of $1,000 ($1,300-$200).
       The total permitted contributions for H and W are $2,300 
     ($1,000 for H plus $1,300 for W). The combined contribution 
     should be limited to $1,500, their combined earned income.
       The provision provides that the contributions for the 
     spouse with the lesser income cannot exceed the combined 
     earned income of the spouses.
     Amendment related to the Revenue Reconciliation Act of 1990 
         (sec. 727 of the bill)
       Qualified tertiary injectant expenses.--The provision 
     clarifies that the enhanced oil recovery credit (sec. 43) 
     applies with respect to qualified tertiary injectant expenses 
     described in section 193(b) that are paid or incurred in 
     connection with a qualified enhanced oil recovery project, 
     and that are deductible for the taxable year (regardless of 
     the provision allowing the deduction). Purchased and self-
     produced injectants are treated the same for purposes of the 
     section 43 credit.
     Amendments to other acts (sec. 728 of the bill)
       Insurance.--The legislative history of section 7702A(a) 
     (enacted in the Technical and Miscellaneous Revenue Act of 
     1988) indicated that if a life insurance contract became a 
     modified endowment contract (``MEC''), then the MEC status 
     could not be eliminated by exchanging the MEC for another 
     contract. Section 7702A(a)((2), however, arguably might be 
     read to allow a policyholder to exchange a MEC for a contract 
     that does not fail the 7-pay test of section 7702A(b), then 
     exchange the second contract for a third contract, which 
     would not literally have been received in exchange for a 
     contract that failed to meet the 7-pay test. The provision 
     clarifies section 7702A(a)(2) to correspond to the 
     legislative history, effective as if enacted with the 
     Technical and Miscellaneous Revenue Act of 1988 (generally, 
     for contracts entered into on or after June 21, 1988).
       Insurance.--Under section 7702A, if a life insurance 
     contract that is not a modified endowment contract is 
     actually or deemed exchanged for a new life insurance 
     contract, then the 7-pay limit under the new contract is 
     first be computed without reference to the premium paid using 
     the cash surrender value of the old contract, and then would 
     be reduced by 1/7 of the premium paid taking into account the 
     cash surrender value of the old contract. For example, if the 
     old contract had a cash surrender value of $14,000 and the 7-
     pay premium on the new contract would equal $10,000 per year 
     but for the fact that there was an exchange, the 7-pay 
     premium on the new contract would equal $8,000 ($10,000-
     $14,000/7). However, section 7702A(c)(3)(A) arguably might be 
     read to suggest that if the cash surrender value on the new 
     contract was $0 in the first two years (due to surrender 
     charges), then the 7-pay premium might be $10,000 in this 
     example, unintentionally permitting policyholders to engage 
     in a series of ``material changes'' to circumvent the premium 
     limitations in section 7702A. The provision clarifies section 
     7702A(c)(3)(A) to refer to the cash surrender value of the 
     old contract, effective as if enacted with the Technical and 
     Miscellaneous Revenue Act of 1988 (generally, for contracts 
     entered into on or after June 21, 1988).
       Worthless securities.--Section 165(g)(3) provides a special 
     rule for worthless securities of an affiliated corporation. 
     The test for affiliation in section 165(g)(3)(A) is the 80-
     percent vote test for affiliated groups under section 1504(a) 
     that was in effect prior to 1984. When section 1504(a) was 
     amended in the Deficit Reduction Act of 1984 to adopt the 
     vote and value test of present law, no corresponding change 
     was made to section 165(g)(3)(A), even though the tests had 
     been identical until then. The provision conforms the 
     affiliation test of section 165(g)(3)(A) to the test in 
     section 1504(a)(2), effective for taxable years beginning 
     after December 31, 1984.
       Exception for certain annuities under OID rules.--The 
     Deficit Reduction Act of 1984 expanded the prior-law rules 
     for inclusion in income of original issue discount (``OID'') 
     on debt instruments. That Act provided an exception from the 
     definition of a debt instrument for certain annuity 
     contracts, including any annuity contract to which section 72 
     applies and that is issued by an insurance company subject to 
     tax under subchapter L of the Code (and meets certain other 
     requirements) (sec. 1275(a)(1)(B)(ii)). The provision 
     clarifies that an annuity contract otherwise meeting the 
     applicable requirements also comes within the exception of 
     section 1275(a)(1)(B)(ii) if it is issued by an entity 
     described in section 501(c) and exempt from tax under section 
     501(a), that would be subject to tax as an insurance company 
     under subchapter L if it were not exempt under section 
     501(a). For example, the provision clarifies that an annuity 
     contract otherwise meeting the requirements that is issued by 
     a fraternal beneficiary society which is exempt from Federal 
     income tax under section 501(a), and which is described in 
     section 501(c)(8), comes within the exception under section 
     1275(a)(1)(B)(ii). However, an annuity contract issued by a 
     foreign insurer that is not subject to tax in the U.S. as an 
     insurance company under subchapter L with respect to the 
     contract does not come within the exception under section 
     1275(a)(1)(B)(ii). It is understood that charitable gift 
     annuities (as defined in sec. 501(m)) depend (in whole or in 
     substantial part) on the life expectancy of one or more 
     individuals, and thus come within the exception under section 
     1275(a)(1)(B)(i). The provision is effective as if included 
     with section 41 of the Deficit Reduction Act of 1984 (i.e., 
     for taxable years ending after July 18, 1984).
       Losses from section 1256 contracts.--Section 6411 allows 
     tentative refunds for NOL carrybacks, business credit 
     carrybacks and,

[[Page H11013]]

     for corporations only, capital loss carrybacks. Individuals 
     normally cannot carry back a capital loss. However, section 
     1212(c) does allow a carryback of section 1256 losses, if 
     elected by the taxpayer. The provision amends section 6411(a) 
     by including a reference to section 1212(c), effective as if 
     included with section 504 of the Economic Recovery Tax Act of 
     1981.
       Highway Trust Fund.--The provision modifies administrative 
     procedures of the Highway Trust Fund to conform to the 1993 
     repeal of the special tax rate applicable to ethanol prior to 
     1994. The provision is effective for taxes received after the 
     date of enactment. This ensures that retroactive adjustments, 
     if any, are not made to the Highway Trust Fund.
       Conforming amendment for expenditures from Vaccine Injury 
     Compensation Trust Fund.--The provision makes a conforming 
     amendment to the expenditure purposes of the Vaccine Injury 
     Compensation Trust Fund to enable certain payments to be made 
     from the Trust Fund.
     Clerical changes (sec. 729 of the bill)
       The bill makes a number of clerical and typographical 
     amendments to the Code.

                     EXCLUSION FROM PAYGO SCORECARD


                              present law

       Under the Balanced Budget and Emergency Deficit Control Act 
     of 1985, as amended, tax reduction legislation is subject to 
     a ``pay-as-you-go'' (PAYGO) requirement. The PAYGO system 
     tracks legislation that may increase budget deficits using a 
     ``scorecard'' (estimated by the Office of Management and 
     Budget). Any revenue loss would have to be offset by other 
     revenue increases, reductions in direct spending or a 
     combination of the two.


                               house bill

       No provision.


                            senate amendment

       No provision.


                          conference agreement

       The conference agreement provides that, upon enactment of 
     the Act, the Director of the Office of Management and Budget 
     shall not make any estimate of the changes in direct spending 
     outlays and receipts under section 252(d) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 resulting 
     from the enactment of the Act.

                        TAX COMPLEXITY ANALYSIS

       The following tax complexity analysis is provided pursuant 
     to section 4022(b) of the Internal Revenue Service Reform and 
     Restructuring Act of 1998, which requires the staff of the 
     Joint Committee on Taxation (in consultation with the 
     Internal Revenue Service (``IRS'') and the Treasury 
     Department) to provide a complexity analysis of tax 
     legislation reported by the House Committee on Ways and 
     Means, the Senate Committee on Finance, or a Conference 
     Report containing tax provisions. The complexity analysis is 
     required to report on the complexity and administrative 
     issues raised by provisions that directly or indirectly amend 
     the Internal Revenue Code and that have widespread 
     applicability to individuals or small businesses. For each 
     such provision identified by the staff of the Joint Committee 
     on Taxation, a summary description of the provision is 
     provided, along with an estimate of the number of affected 
     taxpayers, and a discussion regarding the relevant complexity 
     and administrative issues. Time constraints prevented the 
     staff of the Joint Committee on Taxation from consulting with 
     the IRS regarding the provisions in the conference agreement 
     that have widespread applicability.
     1. Increase deduction for business meals (sec. 204 of the 
         conference agreement)
     Summary description of provision
       The provision increases the deductible percentage of 
     business meal (food and beverage) expenses to 70 percent, 
     effective for taxable years beginning after December 31, 
     2000.
     Number of affected taxpayers
       It is estimated that almost all small businesses will be 
     affected by the provision.
     Discussion
       Because the provision increases the percentage deduction 
     only with respect to meals and not entertainment, small 
     businesses may have to keep additional records to distinguish 
     between the two types of expenditures. The provision may lead 
     to additional disputes between small businesses and the IRS 
     regarding the nature of an expenditure, particularly in 
     business situations where the meal and entertainment is 
     provided as a package for a single price. No new regulatory 
     changes would be needed to implement the provision (although 
     a conforming change to regulations to reflect the increasing 
     percentage would be appropriate).
     2. Accelerate 100-percent self-employed health insurance 
         deduction (sec. 301 of the conference agreement)
     Summary description of provision
       The provision accelerates the increase in the deduction for 
     health insurance expenses of self-employed individuals so 
     that the deduction is 100 percent in years beginning after 
     December 31, 2000.
     Number of affected taxpayers
       It is estimated that the provision will affect three 
     million small businesses.
     Discussion
       It is not anticipated that individuals or small businesses 
     will need to keep additional records due to the provision. It 
     is not anticipated that the provision will result in an 
     increase in disputes with the IRS, or increase tax return 
     preparation costs. It is not anticipated that regulatory 
     guidance will be needed to implement the provision. 
     Accelerating the 100-percent deduction may simplify the 
     preparation of tax returns for self-employed individuals, 
     because they will no longer need to keep track of the percent 
     of health insurance expenses that are deductible, and will 
     need to perform one less calculation.

[[Page H11014]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.020
     


[[Page H11015]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.021
     


[[Page H11016]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.022
     


[[Page H11017]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.023
     


[[Page H11018]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.024
     


[[Page H11019]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.025
     


[[Page H11020]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.026
     


[[Page H11021]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.027
     


[[Page H11022]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.028
     


[[Page H11023]]

     [GRAPHIC] [TIFF OMITTED] TH25OC00.029
     


[[Page H11024]]

 medicare, medicaid, and schip benefits improvement and protection act 
                                of 2000

       The conference agreement would enact the provisions of H.R. 
     5543, as introduced on October 25, 2000. The text of that 
     bill follows:

     SECTION 1. SHORT TITLE; AMENDMENTS TO SOCIAL SECURITY ACT; 
                   REFERENCES TO OTHER ACTS; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Medicare, 
     Medicaid, and SCHIP Benefits Improvement and Protection Act 
     of 2000''.
       (b) Amendments to Social Security Act.--Except as otherwise 
     specifically provided, whenever in this Act an amendment is 
     expressed in terms of an amendment to or repeal of a section 
     or other provision, the reference shall be considered to be 
     made to that section or other provision of the Social 
     Security Act.
       (c) References to Other Acts.--In this Act:
       (1) Balanced budget act of 1997.--The term ``BBA'' means 
     the Balanced Budget Act of 1997 (Public Law 105-33; 111 Stat. 
     251).
       (2) Medicare, medicaid, and schip balanced budget 
     refinement act of 1999.--The term ``BBRA'' means the 
     Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act 
     of 1999 (Appendix F, 113 Stat. 1501A-321), as enacted into 
     law by section 1000(a)(6) of Public Law 106-113.
       (d) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; amendments to Social Security Act; references to 
              other Acts; table of contents.

               TITLE I--MEDICARE BENEFICIARY IMPROVEMENTS

                Subtitle A--Improved Preventive Benefits

Sec. 101. Coverage of biennial screening pap smear and pelvic exams.
Sec. 102. Coverage of screening for glaucoma.
Sec. 103. Coverage of screening colonoscopy for average risk 
              individuals.
Sec. 104. Modernization of screening mammography benefit.
Sec. 105. Coverage of medical nutrition therapy services for 
              beneficiaries with diabetes or a renal disease.

               Subtitle B--Other Beneficiary Improvements

Sec. 111. Acceleration of reduction of beneficiary copayment for 
              hospital outpatient department services.
Sec. 112. Preservation of coverage of drugs and biologicals under part 
              B of the medicare program.
Sec. 113. Elimination of time limitation on medicare benefits for 
              immunosuppressive drugs.
Sec. 114. Imposition of billing limits on prescription drugs.

             Subtitle C--Demonstration Projects and Studies

Sec. 121. Demonstration project for disease management for severely 
              chronically ill medicare beneficiaries.
Sec. 122. Cancer prevention and treatment demonstration for ethnic and 
              racial minorities.
Sec. 123. Study on medicare coverage of routine thyroid screening.
Sec. 124. MedPAC study on consumer coalitions.
Sec. 125. Study on limitation on State payment for medicare cost-
              sharing affecting access to services for qualified 
              medicare beneficiaries.
Sec. 126. Institute of Medicine study on waiver of 24-month waiting 
              period for medicare disability eligibility for 
              amyotrophic lateral sclerosis (ALS) and other devastating 
              diseases.
Sec. 127. Studies on preventive interventions in primary care for older 
              Americans.
Sec. 128. MedPAC study and report on medicare coverage of cardiac and 
              pulmonary rehabilitation therapy services.

                TITLE II--RURAL HEALTH CARE IMPROVEMENTS

            Subtitle A--Critical Access Hospital Provisions

Sec. 201. Clarification of no beneficiary cost-sharing for clinical 
              diagnostic laboratory tests furnished by critical access 
              hospitals.
Sec. 202. Assistance with fee schedule payment for professional 
              services under all-inclusive rate.
Sec. 203. Exemption of critical access hospital swing beds from SNF 
              PPS.
Sec. 204. Payment in critical access hospitals for emergency room on-
              call physicians.
Sec. 205. Treatment of ambulance services furnished by certain critical 
              access hospitals.
Sec. 206. GAO study on certain eligibility requirements for critical 
              access hospitals.

              Subtitle B--Other Rural Hospitals Provisions

Sec. 211. Equitable treatment for rural disproportionate share 
              hospitals.
Sec. 212. Option to base eligibility for medicare dependent, small 
              rural hospital program on discharges during 2 of the 3 
              most recently audited cost reporting periods.
Sec. 213. Extension of option to use rebased target amounts to all sole 
              community hospitals.
Sec. 214. MedPAC analysis of impact of volume on per unit cost of rural 
              hospitals with psychiatric units.

                   Subtitle C--Other Rural Provisions

Sec. 221. Assistance for providers of ambulance services in rural 
              areas.
Sec. 222. Payment for certain physician assistant services.
Sec. 223. Revision of medicare reimbursement for telehealth services.
Sec. 224. Expanding access to rural health clinics.
Sec. 225. MedPAC study on low-volume, isolated rural health care 
              providers.

                TITLE III--PROVISIONS RELATING TO PART A

                Subtitle A--Inpatient Hospital Services

Sec. 301. Revision of acute care hospital payment update for 2001.
Sec. 302. Additional modification in transition for indirect medical 
              education (IME) percentage adjustment.
Sec. 303. Decrease in reductions for disproportionate share hospital 
              (DSH) payments.
Sec. 304. Wage index improvements.
Sec. 305. Payment for inpatient services of rehabilitation hospitals.
Sec. 306. Payment for inpatient services of psychiatric hospitals.
Sec. 307. Payment for inpatient services of long-term care hospitals.

 Subtitle B--Adjustments to PPS Payments for Skilled Nursing Facilities

Sec. 311. Elimination of reduction in skilled nursing facility (SNF) 
              market basket update in 2001.
Sec. 312. Increase in nursing component of PPS Federal rate.
Sec. 313. Application of SNF consolidated billing requirement limited 
              to part A covered stays.
Sec. 314. Adjustment of rehabilitation RUGs to correct anomaly in 
              payment rates.
Sec. 315. Establishment of process for geographic reclassification.

                        Subtitle C--Hospice Care

Sec. 321. Full market basket increase for 2001.
Sec. 322. Clarification of physician certification.
Sec. 323. MedPAC report on access to, and use of, hospice benefit.

                      Subtitle D--Other Provisions

Sec. 331. Relief from medicare part A late enrollment penalty for group 
              buy-in for State and local retirees.
Sec. 332. Posting of information on nursing facility staffing.

                TITLE IV--PROVISIONS RELATING TO PART B

                Subtitle A--Hospital Outpatient Services

Sec. 401. Revision of hospital outpatient PPS payment update.
Sec. 402. Clarifying process and standards for determining eligibility 
              of devices for pass-through payments under hospital 
              outpatient PPS.
Sec. 403. Application of OPD PPS transitional corridor payments to 
              certain hospitals that did not submit a 1996 cost report.
Sec. 404. Application of rules for determining provider-based status 
              for certain entities.
Sec. 405. Treatment of children's hospitals under prospective payment 
              system.
Sec. 406. Inclusion of temperature monitored cryoablation in 
              transitional pass-through for certain medical devices, 
              drugs, and biologicals under OPD PPS.

        Subtitle B--Provisions Relating to Physicians' Services

Sec. 411. GAO studies relating to physicians' services.
Sec. 412. Physician group practice demonstration.
Sec. 413. Study on enrollment procedures for groups that retain 
              independent contractor physicians.

                       Subtitle C--Other Services

Sec. 421. 1-year extension of moratorium on therapy caps; report on 
              standards for supervision of physical therapy assistants.
Sec. 422. Update in renal dialysis composite rate.
Sec. 423. Payment for ambulance services.
Sec. 424. Ambulatory surgical centers.
Sec. 425. Full update for durable medical equipment.
Sec. 426. Full update for orthotics and prosthetics.
Sec. 427. Establishment of special payment provisions and requirements 
              for prosthetics and certain custom fabricated orthotic 
              items.
Sec. 428. Replacement of prosthetic devices and parts.
Sec. 429. Revised part B payment for drugs and biologicals and related 
              services.
Sec. 430. Contrast enhanced diagnostic procedures under hospital 
              prospective payment system.
Sec. 431. Qualifications for community mental health centers.
Sec. 432. Modification of medicare billing requirements for certain 
              Indian providers.
Sec. 433. GAO study on coverage of surgical first assisting services of 
              certified registered nurse first assistants.
Sec. 434. MedPAC study and report on medicare reimbursement for 
              services provided by certain providers.
Sec. 435. MedPAC study and report on medicare coverage of services 
              provided by certain nonphysician providers.
Sec. 436. GAO study and report on the costs of emergency and medical 
              transportation services.
Sec. 437. GAO studies and reports on medicare payments.
Sec. 438. MedPAC study on access to outpatient pain management 
              services.

[[Page H11025]]

             TITLE V--PROVISIONS RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

Sec. 501. 1-year additional delay in application of 15 percent 
              reduction on payment limits for home health services.
Sec. 502. Restoration of full home health market basket update for home 
              health services for fiscal year 2001.
Sec. 503. Temporary two-month extension of periodic interim payments.
Sec. 504. Use of telehealth in delivery of home health services.
Sec. 505. Study on costs to home health agencies of purchasing 
              nonroutine medical supplies.
Sec. 506. Treatment of branch offices; GAO study on supervision of home 
              health care provided in isolated rural areas.
Sec. 507. Clarification of the homebound definition under the medicare 
              home health benefit.

             Subtitle B--Direct Graduate Medical Education

Sec. 511. Increase in floor for direct graduate medical education 
              payments.
Sec. 512. Change in distribution formula for Medicare+Choice-related 
              nursing and allied health education costs.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

Sec. 521. Revisions to medicare appeals process.
Sec. 522. Revisions to medicare coverage process.

            Subtitle D--Improving Access to New Technologies

Sec. 531. Reimbursement improvements for new clinical laboratory tests 
              and durable medical equipment.
Sec. 532. Retention of HCPCS level III codes.
Sec. 533. Recognition of new medical technologies under inpatient 
              hospital PPS.

                      Subtitle E--Other Provisions

Sec. 541. Increase in reimbursement for bad debt.
Sec. 542. Treatment of certain physician pathology services under 
              medicare.
Sec. 543. Extension of advisory opinion authority.
Sec. 544. Change in annual MedPAC reporting.
Sec. 545. Development of patient assessment instruments.
Sec. 546. GAO report on impact of the Emergency Medical Treatment and 
              Active Labor Act (EMTALA) on hospital emergency 
              departments.

 TITLE VI--PROVISIONS RELATING TO PART C (MEDICARE+CHOICE PROGRAM) AND 
                 OTHER MEDICARE MANAGED CARE PROVISIONS

              Subtitle A--Medicare+Choice Payment Reforms

Sec. 601. Increase in minimum payment amount.
Sec. 602. Increase in minimum percentage increase.
Sec. 603. 10-year phase-in of risk adjustment.
Sec. 604. Transition to revised Medicare+Choice payment rates.
Sec. 605. Revision of payment rates for ESRD patients enrolled in 
              Medicare+Choice plans.
Sec. 606. Permitting premium reductions as additional benefits under 
              Medicare+Choice plans.
Sec. 607. Full implementation of risk adjustment for congestive heart 
              failure enrollees for 2001.
Sec. 608. Expansion of application of Medicare+Choice new entry bonus.
Sec. 609. Report on inclusion of certain costs of the Department of 
              Veterans Affairs and military facility services in 
              calculating Medicare+Choice payment rates.

               Subtitle B--Other Medicare+Choice Reforms

Sec. 611. Payment of additional amounts for new benefits covered during 
              a contract term.
Sec. 612. Restriction on implementation of significant new regulatory 
              requirements mid-year.
Sec. 613. Timely approval of marketing material that follows model 
              marketing language.
Sec. 614. Avoiding duplicative regulation.
Sec. 615. Election of uniform local coverage policy for Medicare+Choice 
              plan covering multiple localities.
Sec. 616. Eliminating health disparities in Medicare+Choice program.
Sec. 617. Medicare+Choice program compatibility with employer or union 
              group health plans.
Sec. 618. Special medigap enrollment antidiscrimination provision for 
              certain beneficiaries.
Sec. 619. Restoring effective date of elections and changes of 
              elections of Medicare+Choice plans.
Sec. 620. Permitting ESRD beneficiaries to enroll in another 
              Medicare+Choice plan if the plan in which they are 
              enrolled is terminated.
Sec. 621. Providing choice for skilled nursing facility services under 
              the Medicare+Choice program.
Sec. 622. Providing for accountability of Medicare+Choice plans.

                 Subtitle C--Other Managed Care Reforms

Sec. 631. 1-year extension of social health maintenance organization 
              (SHMO) demonstration project.
Sec. 632. Revised terms and conditions for extension of medicare 
              community nursing organization (CNO) demonstration 
              project.
Sec. 633. Extension of medicare municipal health services demonstration 
              projects.
Sec. 634. Service area expansion for medicare cost contracts during 
              transition period.

                          TITLE VII--MEDICAID

Sec. 701. DSH payments.
Sec. 702. New prospective payment system for Federally-qualified health 
              centers and rural health clinics.
Sec. 703. Streamlined approval of continued State-wide section 1115 
              medicaid waivers.
Sec. 704. Medicaid county-organized health systems.
Sec. 705. Deadline for issuance of final regulation relating to 
              medicaid upper payment limits.
Sec. 706. Alaska FMAP.

         TITLE VIII--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

Sec. 801. Special rule for redistribution and availability of unused 
              fiscal year 1998 and 1999 SCHIP allotments.
Sec. 802. Authority to pay medicaid expansion SCHIP costs from title 
              XXI appropriation.

                       TITLE IX--OTHER PROVISIONS

                        Subtitle A--PACE Program

Sec. 901. Extension of transition for current waivers.
Sec. 902. Continuing of certain operating arrangements permitted.
Sec. 903. Flexibility in exercising waiver authority.

   Subtitle B--Outreach to Eligible Low-Income Medicare Beneficiaries

Sec. 911. Outreach on availability of medicare cost-sharing assistance 
              to eligible low-income medicare beneficiaries.

           Subtitle C--Maternal and Child Health Block Grant

Sec. 921. Increase in authorization of appropriations for the maternal 
              and child health services block grant.

                          Subtitle D--Diabetes

Sec. 931. Increase in appropriations for special diabetes programs for 
              type I diabetes and Indians.
Sec. 932. Appropriations for Ricky Ray Hemophilia Relief Fund.
               TITLE I--MEDICARE BENEFICIARY IMPROVEMENTS
                Subtitle A--Improved Preventive Benefits

     SEC. 101. COVERAGE OF BIENNIAL SCREENING PAP SMEAR AND PELVIC 
                   EXAMS.

       (a) In General.--
       (1) Biennial screening pap smear.--Section 1861(nn)(1) (42 
     U.S.C. 1395x(nn)(1)) is amended by striking ``3 years'' and 
     inserting ``2 years''.
       (2) Biennial screening pelvic exam.--Section 1861(nn)(2) 
     (42 U.S.C. 1395x(nn)(2)) is amended by striking ``3 years'' 
     and inserting ``2 years''.
       (b) Effective Date.--The amendments made by subsection (a) 
     apply to items and services furnished on or after July 1, 
     2001.

     SEC. 102. COVERAGE OF SCREENING FOR GLAUCOMA.

       (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) 
     is amended--
       (1) by striking ``and'' at the end of subparagraph (S);
       (2) by inserting ``and'' at the end of subparagraph (T); 
     and
       (3) by adding at the end the following:
       ``(U) screening for glaucoma (as defined in subsection 
     (uu)) for individuals determined to be at high risk for 
     glaucoma, individuals with a family history of glaucoma and 
     individuals with diabetes;''.
       (b) Services Described.--Section 1861 (42 U.S.C. 1395x) is 
     amended by adding at the end the following new subsection:

                        ``Screening for Glaucoma

       ``(uu) The term `screening for glaucoma' means a dilated 
     eye examination with an intraocular pressure measurement, and 
     a direct ophthalmoscopy or a slit-lamp biomicroscopic 
     examination for the early detection of glaucoma which is 
     furnished by or under the direct supervision of an 
     optometrist or ophthalmologist who is legally authorized to 
     furnish such services under State law (or the State 
     regulatory mechanism provided by State law) of the State in 
     which the services are furnished, as would otherwise be 
     covered if furnished by a physician or as an incident to a 
     physician's professional service, if the individual involved 
     has not had such an examination in the preceding year.''.
       (c) Conforming Amendment.--Section 1862(a)(1)(F) (42 U.S.C. 
     1395y(a)(1)(F)) is amended--
       (1) by striking ``and,''; and
       (2) by adding at the end the following: ``and, in the case 
     of screening for glaucoma, which is performed more frequently 
     than is provided under section 1861(uu),''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to services furnished on or after January 1, 
     2002.

     SEC. 103. COVERAGE OF SCREENING COLONOSCOPY FOR AVERAGE RISK 
                   INDIVIDUALS.

       (a) In General.--Section 1861(pp) (42 U.S.C. 1395x(pp)) is 
     amended--
       (1) in paragraph (1)(C), by striking ``In the case of an 
     individual at high risk for colorectal cancer, screening 
     colonoscopy'' and inserting ``Screening colonoscopy''; and
       (2) in paragraph (2), by striking ``In paragraph (1)(C), 
     an'' and inserting ``An''.
       (b) Frequency Limits for Screening Colonoscopy.--Section 
     1834(d) (42 U.S.C. 1395m(d)) is amended--
       (1) in paragraph (2)(E)(ii), by inserting before the period 
     at the end the following: ``or, in the

[[Page H11026]]

     case of an individual who is not at high risk for colorectal 
     cancer, if the procedure is performed within the 119 months 
     after a previous screening colonoscopy'';
       (2) in paragraph (3)--
       (A) in the heading by striking ``for individuals at high 
     risk for colorectal cancer'';
       (B) in subparagraph (A), by striking ``for individuals at 
     high risk for colorectal cancer (as defined in section 
     1861(pp)(2))'';
       (C) in subparagraph (E), by inserting before the period at 
     the end the following: ``or for other individuals if the 
     procedure is performed within the 119 months after a previous 
     screening colonoscopy or within 47 months after a previous 
     screening flexible sigmoidoscopy''.
       (c) Effective Date.--The amendments made by this section 
     apply to colorectal cancer screening services provided on or 
     after July 1, 2001.

     SEC. 104. MODERNIZATION OF SCREENING MAMMOGRAPHY BENEFIT.

       (a) Inclusion in Physician Fee Schedule.--Section 
     1848(j)(3) (42 U.S.C. 1395w-4(j)(3)) is amended by inserting 
     ``(13),'' after ``(4),''.
       (b) Conforming Amendment.--Section 1834(c) (42 U.S.C. 
     1395m(c)) is amended to read as follows:
       ``(c) Payment and Standards for Screening Mammography.--
       ``(1) In general.--With respect to expenses incurred for 
     screening mammography (as defined in section 1861(jj)), 
     payment may be made only--
       ``(A) for screening mammography conducted consistent with 
     the frequency permitted under paragraph (2); and
       ``(B) if the screening mammography is conducted by a 
     facility that has a certificate (or provisional certificate) 
     issued under section 354 of the Public Health Service Act.
       ``(2) Frequency covered.--
       ``(A) In general.--Subject to revision by the Secretary 
     under subparagraph (B)--
       ``(i) no payment may be made under this part for screening 
     mammography performed on a woman under 35 years of age;
       ``(ii) payment may be made under this part for only one 
     screening mammography performed on a woman over 34 years of 
     age, but under 40 years of age; and
       ``(iii) in the case of a woman over 39 years of age, 
     payment may not be made under this part for screening 
     mammography performed within 11 months following the month in 
     which a previous screening mammography was performed.
       ``(B) Revision of frequency.--
       ``(i) Review.--The Secretary, in consultation with the 
     Director of the National Cancer Institute, shall review 
     periodically the appropriate frequency for performing 
     screening mammography, based on age and such other factors as 
     the Secretary believes to be pertinent.
       ``(ii) Revision of frequency.--The Secretary, taking into 
     consideration the review made under clause (i), may revise 
     from time to time the frequency with which screening 
     mammography may be paid for under this subsection.''.
       (c) Effective Date.--The amendments made by subsections (a) 
     and (b) apply with respect to screening mammographies 
     furnished on or after January 1, 2002.
       (d) Payment for New Technologies.--
       (1) Tests furnished in 2001.--
       (A) Screening.--For a screening mammography (as defined in 
     section 1861(jj) of the Social Security Act (42 U.S.C. 
     1395(jj))) furnished during the period beginning on April 1, 
     2001, and ending on December 31, 2001, that uses a new 
     technology, payment for such screening mammography shall be 
     made as follows:
       (i) In the case of a technology which directly takes a 
     digital image (without involving film) and subsequently 
     analyzes such resulting image with software to identify 
     possible problem areas, in an amount equal to 150 percent of 
     the amount of payment under section 1848 of such Act (42 
     U.S.C. 1395w-4) for a bilateral diagnostic mammography (under 
     HCPCS code 76091) for such year.
       (ii) In the case of a technology which allows conversion of 
     a standard film mammogram into a digital image and 
     subsequently analyzes such resulting image with software to 
     identify possible problem areas, in an amount equal to the 
     limit that would otherwise be applied under section 
     1834(c)(3) of such Act (42 U.S.C. 1395m(c)(3)) for 2001, 
     increased by $15.
       (B) Bilateral diagnostic mammography.--For a bilateral 
     diagnostic mammography (under HCPCS code 76091) furnished 
     during the period beginning on April 1, 2001, and ending on 
     December 31, 2001, that uses a new technology described in 
     subparagraph (A)(i), payment for such mammography shall be 
     the amount of payment provided for under such subparagraph.
     The Secretary of Health and Human Services may implement the 
     provisions of this paragraph by program memorandum or 
     otherwise.
       (2) Consideration of new hcpcs code for new technologies 
     after 2001.--The Secretary shall determine, for such 
     screening mammographies performed after 2001, whether the 
     assignment of a new HCPCS code is appropriate for screening 
     mammography that uses a new technology. If the Secretary 
     determines that a new code is appropriate for such screening 
     mammography, the Secretary shall provide for such new code 
     for such tests furnished after 2001.
       (3) New technology described.--For purposes of this 
     subsection, a new technology with respect to a screening 
     mammography is an advance in technology with respect to the 
     test or equipment that results in the following:
       (A) A significant increase or decrease in the resources 
     used in the test or in the manufacture of the equipment.
       (B) A significant improvement in the performance of the 
     test or equipment.
       (C) A significant advance in medical technology that is 
     expected to significantly improve the treatment of medicare 
     beneficiaries.
       (4) HCPCS code defined.--The term ``HCPCS code'' means an 
     alphanumeric code under the Health Care Financing 
     Administration Common Procedure Coding System (HCPCS).

     SEC. 105. COVERAGE OF MEDICAL NUTRITION THERAPY SERVICES FOR 
                   BENEFICIARIES WITH DIABETES OR A RENAL DISEASE.

       (a) Coverage.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)), 
     as amended by section 102(a), is amended--
       (1) in subparagraph (T), by striking ``and'' at the end;
       (2) in subparagraph (U), by inserting ``and'' at the end; 
     and
       (3) by adding at the end the following new subparagraph:
       ``(V) medical nutrition therapy services (as defined in 
     subsection (vv)(1)) in the case of a beneficiary with 
     diabetes or a renal disease who--
       ``(i) has not received diabetes outpatient self-management 
     training services within a time period determined by the 
     Secretary; and
       ``(ii) meets such other criteria determined by the 
     Secretary after consideration of protocols established by 
     dietitian or nutrition professional organizations;''.
       (b) Services Described.--Section 1861 (42 U.S.C. 1395x), as 
     amended by section 102(b), is amended by adding at the end 
     the following:

``Medical Nutrition Therapy Services; Registered Dietitian or Nutrition 
                              Professional

       ``(vv)(1) The term `medical nutrition therapy services' 
     means nutritional diagnostic, therapy, and counseling 
     services for the purpose of disease management which are 
     furnished by a registered dietitian or nutrition professional 
     (as defined in paragraph (2)) pursuant to a referral by a 
     physician (as defined in subsection (r)(1)).
       ``(2) Subject to paragraph (3), the term `registered 
     dietitian or nutrition professional' means an individual 
     who--
       ``(A) holds a baccalaureate or higher degree granted by a 
     regionally accredited college or university in the United 
     States (or an equivalent foreign degree) with completion of 
     the academic requirements of a program in nutrition or 
     dietetics, as accredited by an appropriate national 
     accreditation organization recognized by the Secretary for 
     this purpose;
       ``(B) has completed at least 900 hours of supervised 
     dietetics practice under the supervision of a registered 
     dietitian or nutrition professional; and
       ``(C)(i) is licensed or certified as a dietitian or 
     nutrition professional by the State in which the services are 
     performed; or
       ``(ii) in the case of an individual in a State that does 
     not provide for such licensure or certification, meets such 
     other criteria as the Secretary establishes.
       ``(3) Subparagraphs (A) and (B) of paragraph (2) shall not 
     apply in the case of an individual who, as of the date of the 
     enactment of this subsection, is licensed or certified as a 
     dietitian or nutrition professional by the State in which 
     medical nutrition therapy services are performed.''.
       (c) Payment.--Section 1833(a)(1) (42 U.S.C. 1395l(a)(1)) is 
     amended--
       (1) by striking ``and'' before ``(S)''; and
       (2) by inserting before the semicolon at the end the 
     following: ``, and (T) with respect to medical nutrition 
     therapy services (as defined in section 1861(vv)), the amount 
     paid shall be 80 percent of the lesser of the actual charge 
     for the services or 85 percent of the amount determined under 
     the fee schedule established under section 1848(b) for the 
     same services if furnished by a physician''.
       (d) Application of Limits on Billing.--Section 
     1842(b)(18)(C) (42 U.S.C. 1395u(b)(18)(C)) is amended by 
     adding at the end the following new clause:
       ``(vi) A registered dietitian or nutrition professional.''.
       (e) Effective Date.--The amendments made by this section 
     apply to services furnished on or after January 1, 2002.
       (f) Study.--Not later than July 1, 2003, the Secretary of 
     Health and Human Services shall submit to Congress a report 
     that contains recommendations with respect to the expansion 
     to other medicare beneficiary populations of the medical 
     nutrition therapy services benefit (furnished under the 
     amendments made by this section).
               Subtitle B--Other Beneficiary Improvements

     SEC. 111. ACCELERATION OF REDUCTION OF BENEFICIARY COPAYMENT 
                   FOR HOSPITAL OUTPATIENT DEPARTMENT SERVICES.

       (a) Reducing the Upper Limit on Beneficiary Copayment.--
       (1) In general.--Section 1833(t)(8)(C) (42 U.S.C. 
     1395l(t)(8)(C)) is amended to read as follows:
       ``(C) Limitation on copayment amount.--
       ``(i) To inpatient hospital deductible amount.--In no case 
     shall the copayment amount for a procedure performed in a 
     year exceed the amount of the inpatient hospital deductible 
     established under section 1813(b) for that year.
       ``(ii) To specified percentage.--The Secretary shall reduce 
     the national unadjusted copayment amount for a covered OPD 
     service (or group of such services) furnished in a year in a 
     manner so that the effective copayment rate (determined on a 
     national unadjusted basis) for that service in the year does 
     not exceed the following percentage:

       ``(I) For procedures performed in 2001, 60 percent.
       ``(II) For procedures performed in 2002 or 2003, 55 
     percent.
       ``(III) For procedures performed in 2004, 50 percent.
       ``(IV) For procedures performed in 2005, 45 percent.
       ``(V) For procedures performed in 2006 and thereafter, 40 
     percent.''.

[[Page H11027]]

       (2) Effective date.--The amendment made by paragraph (1) 
     applies with respect to services furnished on or after 
     January 1, 2001.
       (b) Construction Regarding Limiting Increases in Cost-
     Sharing.--Nothing in this Act or the Social Security Act 
     shall be construed as preventing a hospital from waiving the 
     amount of any coinsurance for outpatient hospital services 
     under the medicare program under title XVIII of the Social 
     Security Act that may have been increased as a result of the 
     implementation of the prospective payment system under 
     section 1833(t) of the Social Security Act (42 U.S.C. 
     1395l(t)).
       (c) GAO Study of Reduction in Medigap Premium Levels 
     Resulting From Reductions in Coinsurance.--The Comptroller 
     General of the United States shall work, in concert with the 
     National Association of Insurance Commissioners, to evaluate 
     the extent to which the premium levels for medicare 
     supplemental policies reflect the reductions in coinsurance 
     resulting from the amendment made by subsection (a). Not 
     later than April 1, 2004, the Comptroller General shall 
     submit to Congress a report on such evaluation and the extent 
     to which the reductions in beneficiary coinsurance effected 
     by such amendment have resulted in actual savings to medicare 
     beneficiaries.

     SEC. 112. PRESERVATION OF COVERAGE OF DRUGS AND BIOLOGICALS 
                   UNDER PART B OF THE MEDICARE PROGRAM.

       (a) In General.--Section 1861(s)(2) (42 U.S.C. 1395x(s)(2)) 
     is amended, in each of subparagraphs (A) and (B), by striking 
     ``(including drugs and biologicals which cannot, as 
     determined in accordance with regulations, be self-
     administered)'' and inserting ``(including drugs and 
     biologicals which are not usually self-administered by the 
     patient)''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to drugs and biologicals administered on or after the 
     date of the enactment of this Act.

     SEC. 113. ELIMINATION OF TIME LIMITATION ON MEDICARE BENEFITS 
                   FOR IMMUNOSUPPRESSIVE DRUGS.

       (a) In General.--Section 1861(s)(2)(J) (42 U.S.C. 
     1395x(s)(2)(J)) is amended by striking ``, but only'' and all 
     that follows up to the semicolon at the end.
       (b) Conforming Amendments.--
       (1) Extended coverage.--Section 1832 (42 U.S.C. 1395k) is 
     amended--
       (A) by striking subsection (b); and
       (B) by redesignating subsection (c) as subsection (b).
       (2) Pass-through; report.--Section 227 of BBRA is amended 
     by striking subsection (d).
       (c) Effective Date.--The amendment made by subsection (a) 
     shall apply to drugs furnished on or after the date of the 
     enactment of this Act.

     SEC. 114. IMPOSITION OF BILLING LIMITS ON PRESCRIPTION DRUGS.

       (a) In General.--Section 1842(o) (42 U.S.C. 1395u(o)) is 
     amended by adding at the end the following new paragraph:
       ``(3)(A) Payment for a charge for any drug or biological 
     for which payment may be made under this part may be made 
     under this part only on an assignment-related basis.
       ``(B) The provisions of subsection (b)(18)(B) shall apply 
     to charges for such drugs or biologicals in the same manner 
     as they apply to services furnished by a practitioner 
     described in subsection (b)(18)(C).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to items furnished on or after January 1, 2001.
             Subtitle C--Demonstration Projects and Studies

     SEC. 121. DEMONSTRATION PROJECT FOR DISEASE MANAGEMENT FOR 
                   SEVERELY CHRONICALLY ILL MEDICARE 
                   BENEFICIARIES.

       (a) In General.--The Secretary of Health and Human Services 
     shall conduct a demonstration project under this section (in 
     this section referred to as the ``project'') to demonstrate 
     the impact on costs and health outcomes of applying disease 
     management to medicare beneficiaries with diagnosed, 
     advanced-stage congestive heart failure, diabetes, or 
     coronary heart disease. In no case may the number of 
     participants in the project exceed 30,000 at any time.
       (b) Voluntary Participation.--
       (1) Eligibility.--Medicare beneficiaries are eligible to 
     participate in the project only if--
       (A) they meet specific medical criteria demonstrating the 
     appropriate diagnosis and the advanced nature of their 
     disease;
       (B) their physicians approve of participation in the 
     project; and
       (C) they are not enrolled in a Medicare+Choice plan.
       (2) Benefits.--A beneficiary who is enrolled in the project 
     shall be eligible--
       (A) for disease management services related to their 
     chronic health condition; and
       (B) for payment for all costs for prescription drugs 
     without regard to whether or not they relate to the chronic 
     health condition, except that the project may provide for 
     modest cost-sharing with respect to prescription drug 
     coverage.
       (c) Contracts With Disease Management Organizations.--
       (1) In general.--The Secretary of Health and Human Services 
     shall carry out the project through contracts with up to 
     three disease management organizations. The Secretary shall 
     not enter into such a contract with an organization unless 
     the organization demonstrates that it can produce improved 
     health outcomes and reduce aggregate medicare expenditures 
     consistent with paragraph (2).
       (2) Contract provisions.--Under such contracts--
       (A) such an organization shall be required to provide for 
     prescription drug coverage described in subsection (b)(2)(B);
       (B) such an organization shall be paid a fee negotiated and 
     established by the Secretary in a manner so that (taking into 
     account savings in expenditures under parts A and B of the 
     medicare program under title XVIII of the Social Security 
     Act) there will be a net reduction in expenditures under the 
     medicare program as a result of the project; and
       (C) such an organization shall guarantee, through an 
     appropriate arrangement with a reinsurance company or 
     otherwise, the net reduction in expenditures described in 
     subparagraph (B).
       (3) Payments.--Payments to such organizations shall be made 
     in appropriate proportion from the Trust Funds established 
     under title XVIII of the Social Security Act.
       (d) Application of Medigap Protections to Demonstration 
     Project Enrollees.--(1) Subject to paragraph (2), the 
     provisions of section 1882(s)(3) (other than clauses (i) 
     through (iv) of subparagraph (B)) and 1882(s)(4) of the 
     Social Security Act shall apply to enrollment (and 
     termination of enrollment) in the demonstration project under 
     this section, in the same manner as they apply to enrollment 
     (and termination of enrollment) with a Medicare+Choice 
     organization in a Medicare+Choice plan.
       (2) In applying paragraph (1)--
       (A) any reference in clause (v) or (vi) of section 
     1882(s)(3)(B) of such Act to 12 months is deemed a reference 
     to the period of the demonstration project; and
       (B) the notification required under section 1882(s)(3)(D) 
     of such Act shall be provided in a manner specified by the 
     Secretary of Health and Human Services.
       (e) Duration.--The project shall last for not longer than 3 
     years.
       (f) Waiver.--The Secretary of Health and Human Services 
     shall waive such provisions of title XVIII of the Social 
     Security Act as may be necessary to provide for payment for 
     services under the project in accordance with subsection 
     (c)(3).
       (g) Report.--The Secretary of Health and Human Services 
     shall submit to Congress an interim report on the project not 
     later than 2 years after the date it is first implemented and 
     a final report on the project not later than 6 months after 
     the date of its completion. Such reports shall include 
     information on the impact of the project on costs and 
     health outcomes and recommendations on the cost-
     effectiveness of extending or expanding the project.

     SEC. 122. CANCER PREVENTION AND TREATMENT DEMONSTRATION FOR 
                   ETHNIC AND RACIAL MINORITIES.

       (a) Demonstration.--
       (1) In general.--The Secretary of Health and Human Services 
     (in this section referred to as the ``Secretary'') shall 
     conduct demonstration projects (in this section referred to 
     as ``demonstration projects'') for the purpose of developing 
     models and evaluating methods that--
       (A) improve the quality of items and services provided to 
     target individuals in order to facilitate reduced disparities 
     in early detection and treatment of cancer;
       (B) improve clinical outcomes, satisfaction, quality of 
     life, and appropriate use of medicare-covered services and 
     referral patterns among those target individuals with cancer;
       (C) eliminate disparities in the rate of preventive cancer 
     screening measures, such as pap smears and prostate cancer 
     screenings, among target individuals; and
       (D) promote collaboration with community-based 
     organizations to ensure cultural competency of health care 
     professionals and linguistic access for persons with limited 
     English proficiency.
       (2) Target individual defined.--In this section, the term 
     ``target individual'' means an individual of a racial and 
     ethnic minority group, as defined by section 1707 of the 
     Public Health Service Act, who is entitled to benefits under 
     part A, and enrolled under part B, of title XVIII of the 
     Social Security Act.
       (b) Program Design.--
       (1) Initial design.--Not later than 1 year after the date 
     of the enactment of this Act, the Secretary shall evaluate 
     best practices in the private sector, community programs, and 
     academic research of methods that reduce disparities among 
     individuals of racial and ethnic minority groups in the 
     prevention and treatment of cancer and shall design the 
     demonstration projects based on such evaluation.
       (2) Number and project areas.--Not later than 2 years after 
     the date of the enactment of this Act, the Secretary shall 
     implement at least 9 demonstration projects, including the 
     following:
       (A) 2 projects for each of the 4 major racial and ethnic 
     minority groups (American Indians (including Alaska Natives, 
     Eskimos, and Aleuts); Asian Americans and Pacific Islanders; 
     Blacks; and Hispanics. The 2 projects must target different 
     ethnic subpopulations.
       (B) 1 project within the Pacific Islands.
       (C) At least 1 project each in a rural area and inner-city 
     area.
       (3) Expansion of projects; implementation of demonstration 
     project results.--If the initial report under subsection (c) 
     contains an evaluation that demonstration projects--
       (A) reduce expenditures under the medicare program under 
     title XVIII of the Social Security Act; or
       (B) do not increase expenditures under the medicare program 
     and reduce racial and ethnic health disparities in the 
     quality of health care services provided to target 
     individuals and increase satisfaction of beneficiaries and 
     health care providers;
     the Secretary shall continue the existing demonstration 
     projects and may expand the number of demonstration projects.
       (c) Report to Congress.--
       (1) In general.--Not later than 2 years after the date the 
     Secretary implements the initial demonstration projects, and 
     biannually thereafter, the Secretary shall submit to Congress 
     a report regarding the demonstration projects.

[[Page H11028]]

       (2) Contents of report.--Each report under paragraph (1) 
     shall include the following:
       (A) A description of the demonstration projects.
       (B) An evaluation of--
       (i) the cost-effectiveness of the demonstration projects;
       (ii) the quality of the health care services provided to 
     target individuals under the demonstration projects; and
       (iii) beneficiary and health care provider satisfaction 
     under the demonstration projects.
       (C) Any other information regarding the demonstration 
     projects that the Secretary determines to be appropriate.
       (d) Waiver Authority.--The Secretary shall waive compliance 
     with the requirements of title XVIII of the Social Security 
     Act to such extent and for such period as the Secretary 
     determines is necessary to conduct demonstration projects.
       (e) Funding.--
       (1) Demonstration projects.--
       (A) State projects.--Except as provided in subparagraph 
     (B), the Secretary shall provide for the transfer from the 
     Federal Hospital Insurance Trust Fund and the Federal 
     Supplementary Insurance Trust Fund under title XVIII of the 
     Social Security Act, in such proportions as the Secretary 
     determines to be appropriate, of such funds as are necessary 
     for the costs of carrying out the demonstration projects.
       (B) Territory projects.--In the case of a demonstration 
     project described in subsection (b)(2)(B), amounts shall be 
     available only as provided in any Federal law making 
     appropriations for the territories.
       (2) Limitation.--In conducting demonstration projects, the 
     Secretary shall ensure that the aggregate payments made by 
     the Secretary do not exceed the sum of the amount which the 
     Secretary would have paid under the program for the 
     prevention and treatment of cancer if the demonstration 
     projects were not implemented, plus $25,000,000.

     SEC. 123. STUDY ON MEDICARE COVERAGE OF ROUTINE THYROID 
                   SCREENING.

       (a) Study.--The Secretary of Health and Human Services 
     shall request the National Academy of Sciences, and as 
     appropriate in conjunction with the United States Preventive 
     Services Task Force, to conduct a study on the addition of 
     coverage of routine thyroid screening using a thyroid 
     stimulating hormone test as a preventive benefit provided to 
     medicare beneficiaries under title XVIII of the Social 
     Security Act for some or all medicare beneficiaries. In 
     conducting the study, the Academy shall consider the short-
     term and long-term benefits, and costs to the medicare 
     program, of such addition.
       (b) Report.--Not later than 2 years after the date of the 
     enactment of this Act, the Secretary of Health and Human 
     Services shall submit a report on the findings of the study 
     conducted under subsection (a) to the Committee on Ways and 
     Means and the Committee on Commerce of the House of 
     Representatives and the Committee on Finance of the Senate.

     SEC. 124. MEDPAC STUDY ON CONSUMER COALITIONS.

       (a) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study that examines the use of consumer coalitions 
     in the marketing of Medicare+Choice plans under the medicare 
     program under title XVIII of the Social Security Act. The 
     study shall examine--
       (1) the potential for increased efficiency in the medicare 
     program through greater beneficiary knowledge of their health 
     care options, decreased marketing costs of Medicare+Choice 
     organizations, and creation of a group market;
       (2) the implications of Medicare+Choice plans and medicare 
     supplemental policies (under section 1882 of the Social 
     Security Act (42 U.S.C. 1395ss)) offering medicare 
     beneficiaries in the same geographic location different 
     benefits and premiums based on their affiliation with a 
     consumer coalition;
       (3) how coalitions should be governed, how they should be 
     accountable to the Secretary of Health and Human Services, 
     and how potential conflicts of interest in the activities of 
     consumer coalitions should be avoided; and
       (4) how such coalitions should be funded.
       (b) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under subsection 
     (a). The report shall include a recommendation on whether and 
     how a demonstration project might be conducted for the 
     operation of consumer coalitions under the medicare program.
       (c) Consumer Coalition Defined.--For purposes of this 
     section, the term ``consumer coalition'' means a nonprofit, 
     community-based group of organizations that--
       (1) provides information to medicare beneficiaries about 
     their health care options under the medicare program; and
       (2) negotiates benefits and premiums for medicare 
     beneficiaries who are members or otherwise affiliated with 
     the group of organizations with Medicare+Choice organizations 
     offering Medicare+Choice plans, issuers of medicare 
     supplemental policies, issuers of long-term care coverage, 
     and pharmacy benefit managers.

     SEC. 125. STUDY ON LIMITATION ON STATE PAYMENT FOR MEDICARE 
                   COST-SHARING AFFECTING ACCESS TO SERVICES FOR 
                   QUALIFIED MEDICARE BENEFICIARIES.

       (a) In General.--The Secretary of Health and Human Services 
     shall conduct a study to determine if access to certain 
     services (including mental health services) for qualified 
     medicare beneficiaries has been affected by limitations on a 
     State's payment for medicare cost-sharing for such 
     beneficiaries under section 1902(n) of the Social Security 
     Act (42 U.S.C. 1396a(n)). As part of such study, the 
     Secretary shall analyze the effect of such payment limitation 
     on providers who serve a disproportionate share of such 
     beneficiaries.
       (b) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Secretary shall submit to Congress 
     a report on the study under subsection (a). The report shall 
     include recommendations regarding any changes that should be 
     made to the State payment limits under section 1902(n) for 
     qualified medicare beneficiaries to ensure appropriate access 
     to services.

     SEC. 126. INSTITUTE OF MEDICINE STUDY ON WAIVER OF 24-MONTH 
                   WAITING PERIOD FOR MEDICARE DISABILITY 
                   ELIGIBILITY FOR AMYOTROPHIC LATERAL SCLEROSIS 
                   (ALS) AND OTHER DEVASTATING DISEASES.

       (a) Study.--The Secretary of Health and Human Services 
     shall enter into a contract with the Institute of Medicine to 
     conduct a study that examines the appropriateness of waiving 
     the 24-month waiting period for eligibility for benefits 
     under the medicare program under title XVIII of the Social 
     Security Act applicable under section 226(b) of such Act (42 
     U.S.C. 426(b)) for individuals with a devastating disease. 
     For purposes of this section, the term ``devastating 
     disease'' means amyotrophic lateral sclerosis (ALS) and 
     includes any other disease that is as rapidly debilitating as 
     ALS.
       (b) Report.--The contract shall provide for the submission 
     to Congress and the Secretary of a report on the study 
     conducted under subsection (a) by not later than 18 months 
     after the date of the enactment of this Act.

     SEC. 127. STUDIES ON PREVENTIVE INTERVENTIONS IN PRIMARY CARE 
                   FOR OLDER AMERICANS.

       (a) Studies.--The Secretary of Health and Human Services, 
     acting through the United States Preventive Services Task 
     Force, shall conduct a series of studies designed to identify 
     preventive interventions that can be delivered in the primary 
     care setting and that are most valuable to older Americans.
       (b) Mission Statement.--The mission statement of the United 
     States Preventive Services Task Force is amended to include 
     the evaluation of services that are of particular relevance 
     to older Americans.
       (c) Report.--Not later than 1 year after the date of the 
     enactment of this Act, and annually thereafter, the Secretary 
     of Health and Human Services shall submit to Congress a 
     report on the conclusions of the studies conducted under 
     subsection (a), together with recommendations for such 
     legislation and administrative actions as the Secretary 
     considers appropriate.

     SEC. 128. MEDPAC STUDY AND REPORT ON MEDICARE COVERAGE OF 
                   CARDIAC AND PULMONARY REHABILITATION THERAPY 
                   SERVICES.

       (a) Study.--
       (1) In general.--The Medicare Payment Advisory Commission 
     shall conduct a study on coverage of cardiac and pulmonary 
     rehabilitation therapy services under the medicare program 
     under title XVIII of the Social Security Act.
       (2) Focus.--In conducting the study under paragraph (1), 
     the Commission shall focus on the appropriate--
       (A) qualifying diagnoses required for coverage of cardiac 
     and pulmonary rehabilitation therapy services;
       (B) level of physician direct involvement and supervision 
     in furnishing such services; and
       (C) level of reimbursement for such services.
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under subsection (a) 
     together with such recommendations for legislation and 
     administrative action as the Commission determines 
     appropriate.
                TITLE II--RURAL HEALTH CARE IMPROVEMENTS
            Subtitle A--Critical Access Hospital Provisions

     SEC. 201. CLARIFICATION OF NO BENEFICIARY COST-SHARING FOR 
                   CLINICAL DIAGNOSTIC LABORATORY TESTS FURNISHED 
                   BY CRITICAL ACCESS HOSPITALS.

       (a) Payment Clarification.--Section 1834(g) (42 U.S.C. 
     1395m(g)) is amended by adding at the end the following new 
     paragraph:
       ``(4) No beneficiary cost-sharing for clinical diagnostic 
     laboratory services.--No coinsurance, deductible, copayment, 
     or other cost-sharing otherwise applicable under this part 
     shall apply with respect to clinical diagnostic laboratory 
     services furnished as an outpatient critical access hospital 
     service. Nothing in this title shall be construed as 
     providing for payment for clinical diagnostic laboratory 
     services furnished as part of outpatient critical access 
     hospital services, other than on the basis described in this 
     subsection.''.
       (b) Technical and Conforming Amendments.--
       (1) Paragraphs (1)(D)(i) and (2)(D)(i) of section 1833(a) 
     (42 U.S.C. 1395l(a)) are each amended by striking ``or which 
     are furnished on an outpatient basis by a critical access 
     hospital''.
       (2) Section 403(d)(2) of BBRA (113 Stat. 1501A-371) is 
     amended by striking ``The amendment made by subsection (a) 
     shall apply'' and inserting ``Paragraphs (1) through (3) of 
     section 1834(g) of the Social Security Act (as amended by 
     paragraph (1)) apply''.
       (c) Effective Dates.--The amendment made--
       (1) by subsection (a) applies to services furnished on or 
     after the date of the enactment of BBRA;
       (2) by subsection (b)(1) applies as if included in the 
     enactment of section 403(e)(1) of BBRA (113 Stat. 1501A-371); 
     and
       (3) by subsection (b)(2) applies as if included in the 
     enactment of section 403(d)(2) of BBRA (113 Stat. 1501A-371).

[[Page H11029]]

     SEC. 202. ASSISTANCE WITH FEE SCHEDULE PAYMENT FOR 
                   PROFESSIONAL SERVICES UNDER ALL-INCLUSIVE RATE.

       (a) In General.--Section 1834(g)(2)(B) (42 U.S.C. 
     1395m(g)(2)(B)) is amended by inserting ``115 percent of'' 
     before ``such amounts''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies with respect to items and services furnished on or 
     after April 1, 2001.

     SEC. 203. EXEMPTION OF CRITICAL ACCESS HOSPITAL SWING BEDS 
                   FROM SNF PPS.

       (a) In General.--Section 1888(e)(7) (42 U.S.C. 
     1395yy(e)(7)) is amended--
       (1) in the heading, by striking ``Transition for'' and 
     inserting ``Treatment of'';
       (2) in subparagraph (A), by striking ``In general.--The'' 
     and inserting ``Transition.--Subject to subparagraph (C), 
     the'';
       (3) in subparagraph (A), by inserting ``(other than 
     critical access hospitals)'' after ``facilities described in 
     subparagraph (B)'';
       (4) in subparagraph (B), by striking ``, for which 
     payment'' and all that follows before the period; and
       (5) by adding at the end the following new subparagraph:
       ``(C) Exemption from pps of swing-bed services furnished in 
     critical access hospitals.--The prospective payment system 
     established under this subsection shall not apply to services 
     furnished by a critical access hospital pursuant to an 
     agreement under section 1883.''.
       (b) Payment on a Reasonable Cost Basis for Swing Bed 
     Services Furnished by Critical Access Hospitals.--Section 
     1883(a) (42 U.S.C. 1395tt(a)) is amended--
       (1) in paragraph (2)(A), by inserting ``(other than a 
     critical access hospital)'' after ``any hospital''; and
       (2) by adding at the end the following new paragraph:
       ``(3) Notwithstanding any other provision of this title, a 
     critical access hospital shall be paid for covered skilled 
     nursing facility services furnished under an agreement 
     entered into under this section on the basis of the 
     reasonable costs of such services (as determined under 
     section 1861(v)).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to cost reporting periods beginning on or after 
     the date of the enactment of this Act.

     SEC. 204. PAYMENT IN CRITICAL ACCESS HOSPITALS FOR EMERGENCY 
                   ROOM ON-CALL PHYSICIANS.

       (a) In General.--Section 1834(g) (42 U.S.C. 1395m(g)), as 
     amended by section 201(a), is further amended by adding at 
     the end the following new paragraph:
       ``(5) Coverage of costs for emergency room on-call 
     physicians.--In determining the reasonable costs of 
     outpatient critical access hospital services under paragraphs 
     (1) and (2)(A), the Secretary shall recognize as allowable 
     costs, amounts (as defined by the Secretary) for reasonable 
     compensation and related costs for emergency room physicians 
     who are on-call (as defined by the Secretary) but who are not 
     present on the premises of the critical access hospital 
     involved, and are not otherwise furnishing physicians' 
     services and are not on-call at any other provider or 
     facility.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to cost reporting periods beginning on or after 
     October 1, 2001.

     SEC. 205. TREATMENT OF AMBULANCE SERVICES FURNISHED BY 
                   CERTAIN CRITICAL ACCESS HOSPITALS.

       (a) In General.--Section 1834(l) (42 U.S.C. 1395m(l)) is 
     amended by adding at the end the following new paragraph:
       ``(8) Services furnished by critical access hospitals.--
     Notwithstanding any other provision of this subsection, the 
     Secretary shall pay the reasonable costs incurred in 
     furnishing ambulance services if such services are 
     furnished--
       ``(A) by a critical access hospital (as defined in --
     section 1861(mm)(1)), or
       ``(B) by an entity that is owned and operated by a --
     critical access hospital,
     but only if the critical access hospital or entity is the -
     only provider or supplier of ambulance services that is 
     located within a 35-mile drive of such critical access 
     hospital.''.
       (b) Conforming Amendment.--Section 1833(a)(1)(R) (42 U.S.C. 
     1395l(a)(1)(R)) is amended--
       (1) by striking ``ambulance service,'' and inserting 
     ``ambulance services, (i)''; and
       (2) by inserting before the comma at the end the -
     following: ``and (ii) with respect to ambulance services 
     described in section 1834(l)(8), the amounts paid shall be 
     the amounts determined under section 1834(g) for outpatient 
     critical access hospital services''.
       (c) Effective Date.--The amendments made by this section 
     apply to services furnished on or after the date of the 
     enactment of this Act.

     SEC. 206. GAO STUDY ON CERTAIN ELIGIBILITY REQUIREMENTS FOR 
                   CRITICAL ACCESS HOSPITALS.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study on the eligibility requirements for 
     critical access hospitals under section 1820(c) of the Social 
     Security Act (42 U.S.C. 1395i-4(c)) with respect to 
     limitations on average length of stay and number of beds in 
     such a hospital, including an analysis of--
       (1) the feasibility of having a distinct part unit as part 
     of a critical access hospital for purposes of the medicare 
     program under title XVIII of such Act, and
       (2) the effect of seasonal variations in patient admissions 
     on critical access hospital eligibility requirements with 
     respect to limitations on average annual length of stay and 
     number of beds.
       (b) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under subsection 
     (a) together with recommendations regarding--
       (1) whether distinct part units should be permitted as part 
     of a critical access hospital under the medicare program;
       (2) if so permitted, the payment methodologies that should 
     apply with respect to services provided by such units;
       (3) whether, and to what extent, such units should be 
     included in or excluded from the bed limits applicable to 
     critical access hospitals under the medicare program; and
       (4) any adjustments to such eligibility requirements to 
     account for seasonal variations in patient admissions.
              Subtitle B--Other Rural Hospitals Provisions

     SEC. 211. EQUITABLE TREATMENT FOR RURAL DISPROPORTIONATE 
                   SHARE HOSPITALS.

       (a) Application of Uniform Threshold.--Section 
     1886(d)(5)(F)(v) (42 U.S.C. 1395ww(d)(5)(F)(v)) is amended--
       (1) in subclause (II), by inserting ``(or 15 percent, for 
     discharges occurring on or after April 1, 2001)'' after ``30 
     percent'';
       (2) in subclause (III), by inserting ``(or 15 percent, for 
     discharges occurring on or after April 1, 2001)'' after ``40 
     percent''; and
       (3) in subclause (IV), by inserting ``(or 15 percent, for 
     discharges occurring on or after April 1, 2001)'' after ``45 
     percent''.
       (b) Adjustment of Payment Formulas.--
       (1) Sole community hospitals.--Section 1886(d)(5)(F) (42 
     U.S.C. 1395ww(d)(5)(F)) is amended--
       (A) in clause (iv)(VI), by inserting after ``10 percent'' 
     the following: ``or, for discharges occurring on or after 
     April 1, 2001, is equal to the percent determined in 
     accordance with clause (x)''; and
       (B) by adding at the end the following new clause:
       ``(x) For purposes of clause (iv)(VI) (relating to sole 
     community hospitals), in the case of a hospital for a cost 
     reporting period with a disproportionate patient percentage 
     (as defined in clause (vi)) that--
       ``(I) is less than 17.3, the disproportionate share 
     adjustment percentage is determined in accordance with the 
     following formula: (P-15)(.65) + 2.5;
       ``(II) is equal to or exceeds 17.3, but is less than 30.0, 
     such adjustment percentage is equal to 4 percent; or
       ``(III) is equal to or exceeds 40, such adjustment 
     percentage is equal to 5 percent,

     where `P' is the hospital's disproportionate patient 
     percentage (as defined in clause (vi)).''.
       (2) Rural referral centers.--Such section is further 
     amended--
       (A) in clause (iv)(V), by inserting after ``clause (viii)'' 
     the following: ``or, for discharges occurring on or after 
     April 1, 2001, is equal to the percent determined in 
     accordance with clause (xi)''; and
       (B) by adding at the end the following new clause:
       ``(xi) For purposes of clause (iv)(V) (relating to rural 
     referral centers), in the case of a hospital for a cost 
     reporting period with a disproportionate patient percentage 
     (as defined in clause (vi)) that--
       ``(I) is less than 17.3, the disproportionate share 
     adjustment percentage is determined in accordance with the 
     following formula: (P-15)(.65) + 2.5;
       ``(II) is equal to or exceeds 17.3, but is less than 30.0, 
     such adjustment percentage is equal to 4 percent; or
       ``(III) is equal to or exceeds 30, such adjustment 
     percentage is determined in accordance with the following 
     formula: (P-30)(.6) + 4,

     where `P' is the hospital's disproportionate patient 
     percentage (as defined in clause (vi)).''.
       (3) Small rural hospitals generally.--Such section is 
     further amended--
       (A) in clause (iv)(III), by inserting after ``4 percent'' 
     the following: ``or, for discharges occurring on or after 
     April 1, 2001, is equal to the percent determined in 
     accordance with clause (xii)''; and
       (B) by adding at the end the following new clause:
       ``(xii) For purposes of clause (iv)(III) (relating to small 
     rural hospitals generally), in the case of a hospital for a 
     cost reporting period with a disproportionate patient 
     percentage (as defined in clause (vi)) that--
       ``(I) is less than 17.3, the disproportionate share 
     adjustment percentage is determined in accordance with the 
     following formula: (P-15)(.65) + 2.5;
       ``(II) is equal to or exceeds 17.3, such adjustment 
     percentage is equal to 4 percent,

     where `P' is the hospital's disproportionate patient 
     percentage (as defined in clause (vi)).''.
       (4) Hospitals that are both sole community hospitals and 
     rural referral centers.--Such section is further amended, in 
     clause (iv)(IV), by inserting after ``clause (viii)'' the 
     following: ``or, for discharges occurring on or after April 
     1, 2001, the greater of the percentages determined under 
     clause (x) or (xi)''.
       (5) Urban hospitals with less than 100 beds.--Such section 
     is further amended--
       (A) in clause (iv)(II), by inserting after ``5 percent'' 
     the following: ``or, for discharges occurring on or after 
     April 1, 2001, is equal to the percent determined in 
     accordance with clause (xiii)''; and
       (B) by adding at the end the following new clause:
       ``(xiii) For purposes of clause (iv)(II) (relating to urban 
     hospitals with less than 100 beds), in the case of a hospital 
     for a cost reporting period with a disproportionate patient 
     percentage (as defined in clause (vi)) that--
       ``(I) is less than 17.3, the disproportionate share 
     adjustment percentage is determined in accordance with the 
     following formula: (P-15)(.65) + 2.5;
       ``(II) is equal to or exceeds 17.3, but is less than 40.0, 
     such adjustment percentage is equal to 4 percent; or

[[Page H11030]]

       ``(III) is equal to or exceeds 40, such adjustment 
     percentage is equal to 5 percent,
     where `P' is the hospital's disproportionate patient 
     percentage (as defined in clause (vi)).''.

     SEC. 212. OPTION TO BASE ELIGIBILITY FOR MEDICARE DEPENDENT, 
                   SMALL RURAL HOSPITAL PROGRAM ON DISCHARGES 
                   DURING 2 OF THE 3 MOST RECENTLY AUDITED COST 
                   REPORTING PERIODS.

       (a) In General.--Section 1886(d)(5)(G)(iv)(IV) (42 U.S.C. 
     1395ww(d)(5)(G)(iv)(IV)) is amended by inserting ``, or 2 of 
     the 3 most recently audited cost reporting periods for which 
     the Secretary has a settled cost report,'' after ``1987''.
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to cost reporting periods beginning 
     on or after April 1, 2001.

     SEC. 213. EXTENSION OF OPTION TO USE REBASED TARGET AMOUNTS 
                   TO ALL SOLE COMMUNITY HOSPITALS.

       (a) In General.--Section 1886(b)(3)(I)(i) (42 U.S.C. 
     1395ww(b)(3)(I)(i)) is amended--
       (1) in the matter preceding subclause (I), by striking 
     ``that for its cost reporting period beginning during 1999'' 
     and all that follows through ``for such target amount'' and 
     inserting ``there shall be substituted for the amount 
     otherwise determined under subsection (d)(5)(D)(i), if such 
     substitution results in a greater amount of payment under 
     this section for the hospital'';
       (2) in subclause (I), by striking ``target amount otherwise 
     applicable'' and all that follows through ``target amount')'' 
     and inserting ``the amount otherwise applicable to the 
     hospital under subsection (d)(5)(D)(i) (referred to in this 
     clause as the `subsection (d)(5)(D)(i) amount')''; and
       (3) in each of subclauses (II) and (III), by striking 
     ``subparagraph (C) target amount'' and inserting ``subsection 
     (d)(5)(D)(i) amount''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in the enactment of section 
     405 of BBRA (113 Stat. 1501A-372).

     SEC. 214. MEDPAC ANALYSIS OF IMPACT OF VOLUME ON PER UNIT 
                   COST OF RURAL HOSPITALS WITH PSYCHIATRIC UNITS.

       The Medicare Payment Advisory Commission, in its study 
     conducted pursuant to subsection (a) of section 411 of BBRA 
     (113 Stat. 1501A-377), shall include--
       (1) in such study an analysis of the impact of volume on 
     the per unit cost of rural hospitals with psychiatric units; 
     and
       (2) in its report under subsection (b) of such section a 
     recommendation on whether special treatment for such 
     hospitals may be warranted.
                   Subtitle C--Other Rural Provisions

     SEC. 221. ASSISTANCE FOR PROVIDERS OF AMBULANCE SERVICES IN 
                   RURAL AREAS.

       (a) Transitional Assistance in Certain Mileage Rates.--
     Section 1834(l) (42 U.S.C. 1395m(l)) is amended by adding at 
     the end the following new paragraph:
       ``(8) Transitional assistance for rural providers.--In the 
     case of ground ambulance services furnished on or after the 
     date on which the Secretary implements the fee schedule under 
     this subsection and before January 1, 2004, for which the 
     transportation originates in a rural area (as defined in 
     section 1886(d)(2)(D)) or in a rural census tract of a 
     metropolitan statistical area (as determined under the most 
     recent modification of the Goldsmith Modification, originally 
     published in the Federal Register on February 27, 1992 (57 
     Fed. Reg. 6725)), the fee schedule established under this 
     subsection shall provide that, with respect to the payment 
     rate for mileage for a trip above 17 miles, and up to 50 
     miles, the rate otherwise established shall be increased by 
     not less than \1/2\ of the additional payment per mile 
     established for the first 17 miles of such a trip originating 
     in a rural area.''.
       (b) GAO Studies on the Costs of Ambulance Services 
     Furnished in Rural Areas.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study on each of the matters described in 
     paragraph (2).
       (2) Matters described.--The matters referred to in 
     paragraph (1) are the following:
       (A) The cost of efficiently providing ambulance services 
     for trips originating in rural areas, with special emphasis 
     on collection of cost data from rural providers.
       (B) The means by which rural areas with low population 
     densities can be identified for the purpose of designating 
     areas in which the cost of providing ambulance services would 
     be expected to be higher than similar services provided in 
     more heavily populated areas because of low usage. Such study 
     shall also include an analysis of the additional costs of 
     providing ambulance services in areas designated under the 
     previous sentence.
       (3) Report.--Not later than June 30, 2002, the Comptroller 
     General shall submit to Congress a report on the results of 
     the studies conducted under paragraph (1) and shall include 
     recommendations on steps that should be taken to assure 
     access to ambulance services in rural areas.
       (c) Adjustment in Rural Rates.--In providing for 
     adjustments under subparagraph (D) of section 1834(l)(2) of 
     the Social Security Act (42 U.S.C. 1395m(l)(2)) for years 
     beginning with 2004, the Secretary of Health and Human 
     Services shall take into consideration the recommendations 
     contained in the report under subsection (b)(2) and shall 
     adjust the fee schedule payment rates under such section for 
     ambulance services provided in low density rural areas based 
     on the increased cost (if any) of providing such services in 
     such areas.
       (d) Effective Date.--The amendment made by subsection (a) 
     applies to services furnished on or after the date the 
     Secretary implements the fee schedule under section 1834(l) 
     of the Social Security Act (42 U.S.C. 1395m(l)). In applying 
     such amendment to services furnished on or after such date 
     and before January 1, 2002, the amount of the rate increase 
     provided under such amendment shall be equal to $1.25 per 
     mile.

     SEC. 222. PAYMENT FOR CERTAIN PHYSICIAN ASSISTANT SERVICES.

       (a) Payment for Certain Physician Assistant Services.--
     Section 1842(b)(6)(C) (42 U.S.C. 1395u(b)(6)(C)) is amended--
       (1) by striking ``for such services provided before January 
     1, 2003,''; and
       (2) by striking the semicolon at the end and inserting a 
     comma.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 223. REVISION OF MEDICARE REIMBURSEMENT FOR TELEHEALTH 
                   SERVICES.

       (a) Time Limit for BBA Provision.--Section 4206(a) of BBA 
     (42 U.S.C. 1395l note) is amended by striking ``Not later 
     than January 1, 1999'' and inserting ``For services furnished 
     on and after January 1, 1999, and before July 1, 2001''.
       (b) Expansion of Medicare Payment for Telehealth 
     Services.--Section 1834 (42 U.S.C. 1395m) is amended by 
     adding at the end the following new subsection:
       ``(m) Payment for Telehealth Services.--
       ``(1) In general.--The Secretary shall pay for telehealth 
     services that are furnished via a telecommunications system 
     by a physician (as defined in section 1861(r)) or a 
     practitioner (described in section 1842(b)(18)(C)) to an 
     eligible telehealth individual enrolled under this part 
     notwithstanding that the individual physician or practitioner 
     providing the telehealth service is not at the same location 
     as the beneficiary. For purposes of the preceding sentence, 
     in the case of any Federal telemedicine demonstration program 
     conducted in Alaska or Hawaii, the term `telecommunications 
     system' includes store-and-forward technologies that provide 
     for the asynchronous transmission of health care information 
     in single or multimedia formats.
       ``(2) Payment amount.--
       ``(A) Distant site.--The Secretary shall pay to a physician 
     or practitioner located at a distant site that furnishes a 
     telehealth service to an eligible telehealth individual an 
     amount equal to the amount that such physician or 
     practitioner would have been paid under this title had such 
     service been furnished without the use of a 
     telecommunications system.
       ``(B) Facility fee for originating site.--With respect to a 
     telehealth service, subject to section 1833(a)(1)(U), there 
     shall be paid to the originating site a facility fee equal 
     to--
       ``(i) for the period beginning on July 1, 2001, and ending 
     on December 31, 2001, and for 2002, $20; and
       ``(ii) for a subsequent year, the facility fee specified in 
     clause (i) or this clause for the preceding year increased by 
     the percentage increase in the MEI (as defined in section 
     1842(i)(3)) for such subsequent year.
       ``(C) Telepresenter not required.--Nothing in this 
     subsection shall be construed as requiring an eligible 
     telehealth individual to be presented by a physician or 
     practitioner at the originating site for the furnishing of a 
     service via a telecommunications system, unless it is 
     medically necessary (as determined by the physician or 
     practitioner at the distant site).
       ``(3) Limitation on beneficiary charges.--
       ``(A) Physician and practitioner.--The provisions of 
     section 1848(g) and subparagraphs (A) and (B) of section 
     1842(b)(18) shall apply to a physician or practitioner 
     receiving payment under this subsection in the same manner as 
     they apply to physicians or practitioners under such 
     sections.
       ``(B) Originating site.--The provisions of section 
     1842(b)(18) shall apply to originating sites receiving a 
     facility fee in the same manner as they apply to 
     practitioners under such section.
       ``(4) Definitions.--For purposes of this subsection:
       ``(A) Distant site.--The term `distant site' means the site 
     at which the physician or practitioner is located at the time 
     the service is provided via a telecommunications system.
       ``(B) Eligible telehealth individual.--The term `eligible 
     telehealth individual' means an individual enrolled under 
     this part who receives a telehealth service furnished at an 
     originating site.
       ``(C) Originating site.--
       ``(i) In general.--The term `originating site' means only 
     those sites described in clause (ii) at which the eligible 
     telehealth individual is located at the time the service is 
     furnished via a telecommunications system and only if such 
     site is located--

       ``(I) in an area that is designated as a rural health 
     professional shortage area under section 332(a)(1)(A) of the 
     Public Health Service Act (42 U.S.C. 254e(a)(1)(A));
       ``(II) in a county that is not included in a Metropolitan 
     Statistical Area; or
       ``(III) from an entity that participates in a Federal 
     telemedicine demonstration project that has been approved by 
     (or receives funding from) the Secretary of Health and Human 
     Services as of December 31, 2000.

       ``(ii) Sites described.--The sites referred to in clause 
     (i) are the following sites:

       ``(I) The office of a physician or practitioner.

       ``(II) A critical access hospital (as defined in section 
     1861(mm)(1)).
       ``(III) A rural health clinic (as defined in section 
     1861(aa)(s)).
       ``(IV) A Federally qualified health center (as defined in 
     section 1861(aa)(4)).
       ``(V) A hospital (as defined in section 1861(e)).

       ``(D) Physician.--The term ``physician'' has the meaning 
     given that term in section 1861(r).
       ``(E) Practitioner.--The term `practitioner' has the 
     meaning given that term in section 1842(b)(18)(C).
       ``(F) Telehealth service.--
       ``(i) In general.--The term `telehealth service' means 
     professional consultations, office visits, and office 
     psychiatry services (identified as

[[Page H11031]]

     of July 1, 2000, by HCPCS codes 99241-99275, 99201-99215, 
     90804-90809, and 90862 (and as subsequently modified by the 
     Secretary)), and any additional service specified by the 
     Secretary.
       ``(ii) Yearly update.--The Secretary shall establish a 
     process that provides, on an annual basis, for the addition 
     or deletion of services (and HCPCS codes), as appropriate, to 
     those specified in clause (i) for authorized payment under 
     paragraph (1).''.
       (c) Conforming Amendment.--Section 1833(a)(1) (42 U.S.C. 
     1395l(1)), as amended by section 105(c), is further amended--
       (1) by striking ``and (T)'' and inserting ``(T)''; and
       (2) by inserting before the semicolon at the end the 
     following: ``, and (U) with respect to facility fees 
     described in section 1834(m)(2)(B), the amounts paid shall be 
     80 percent of the lesser of the actual charge or the amounts 
     specified in such section''.
       (d) Study and Report on Additional Coverage.--
       (1) Study.--The Secretary of Health and Human Services 
     shall conduct a study to identify--
       (A) settings and sites for the provision of telehealth 
     services that are in addition to those permitted under 
     section 1834(m) of the Social Security Act, as added by 
     subsection (b);
       (B) practitioners that may be reimbursed under such section 
     for furnishing telehealth services that are in addition to 
     the practitioners that may be reimbursed for such services 
     under such section; and
       (C) geographic areas in which telehealth services may be 
     reimbursed that are in addition to the geographic areas where 
     such services may be reimbursed under such section.
       (2) Report.--Not later than 2 years after the date of the 
     enactment of this Act, the Secretary shall submit to Congress 
     a report on the study conducted under paragraph (1) together 
     with such recommendations for legislation that the Secretary 
     determines are appropriate.
       (e) Effective Date.--The amendments made by subsections (b) 
     and (c) shall be effective for services furnished on or after 
     July 1, 2001.

     SEC. 224. EXPANDING ACCESS TO RURAL HEALTH CLINICS.

       (a) In General.--The matter in section 1833(f) (42 U.S.C. 
     1395l(f)) preceding paragraph (1) is amended by striking 
     ``rural hospitals'' and inserting ``hospitals''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to services furnished on or after July 1, 2001.

     SEC. 225. MEDPAC STUDY ON LOW-VOLUME, ISOLATED RURAL HEALTH 
                   CARE PROVIDERS.

       (a) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study on the effect of low patient and procedure 
     volume on the financial status of low-volume, isolated rural 
     health care providers participating in the medicare program 
     under title XVIII of the Social Security Act.
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under subsection (a) 
     indicating--
       (1) whether low-volume, isolated rural health care 
     providers are having, or may have, significantly decreased 
     medicare margins or other financial difficulties resulting 
     from any of the payment methodologies described in subsection 
     (c);
       (2) whether the status as a low-volume, isolated rural 
     health care provider should be designated under the medicare 
     program and any criteria that should be used to qualify for 
     such a status; and
       (3) any changes in the payment methodologies described in 
     subsection (c) that are necessary to provide appropriate 
     reimbursement under the medicare program to low-volume, 
     isolated rural health care providers (as designated pursuant 
     to paragraph (2)).
       (c) Payment Methodologies Described.--The payment 
     methodologies described in this subsection are the following:
       (1) The prospective payment system for hospital outpatient 
     department services under section 1833(t) of the Social 
     Security Act (42 U.S.C. 1395l(t)).
       (2) The fee schedule for ambulance services under section 
     1834(l) of such Act (42 U.S.C. 1395m(l)).
       (3) The prospective payment system for inpatient hospital 
     services under section 1886 of such Act (42 U.S.C. 1395ww).
       (4) The prospective payment system for routine service 
     costs of skilled nursing facilities under section 1888(e) of 
     such Act (42 U.S.C. 1395yy(e)).
       (5) The prospective payment system for home health services 
     under section 1895 of such Act (42 U.S.C. 1395fff).
                TITLE III--PROVISIONS RELATING TO PART A
                Subtitle A--Inpatient Hospital Services

     SEC. 301. REVISION OF ACUTE CARE HOSPITAL PAYMENT UPDATE FOR 
                   2001.

       (a) In General.--Section 1886(b)(3)(B)(i) (42 U.S.C. 
     1395ww(b)(3)(B)(i)) is amended--
       (1) in subclause (XVI), by striking ``minus 1.1 percentage 
     points for hospitals (other than sole community hospitals) in 
     all areas, and the market basket percentage increase for sole 
     community hospitals,'' and inserting ``for hospitals in all 
     areas,'';
       (2) in subclause (XVII)--
       (A) by striking ``minus 1.1 percentage points'' and 
     inserting ``minus 0.55 percentage points; and
       (B) by striking ``and'' at the end;
       (3) by redesignating subclause (XVIII) as subclause (XIX);
       (4) in subclause (XIX), as so redesignated, by striking 
     ``fiscal year 2003'' and inserting ``fiscal year 2004''; and
       (5) by inserting after subclause (XVII) the following new 
     subclause:
       ``(XVIII) for fiscal year 2003, the market basket 
     percentage increase minus 0.55 percentage points for 
     hospitals in all areas, and''.
       (b) Special Rule for Payment for Fiscal Year 2001.--
     Notwithstanding the amendment made by subsection (a), for 
     purposes of making payments for fiscal year 2001 for 
     inpatient hospital services furnished by subsection (d) 
     hospitals (as defined in section 1886(d)(1)(B) of the Social 
     Security Act (42 U.S.C. 1395ww(d)(1)(B)), the ``applicable 
     percentage increase'' referred to in section 1886(b)(3)(B)(i) 
     of such Act (42 U.S.C. 1395ww(b)(3)(B)(i))--
       (1) for discharges occurring on or after October 1, 2000, 
     and before April 1, 2001, shall be determined in accordance 
     with subclause (XVI) of such section as in effect on the day 
     before the date of the enactment of this Act; and
       (2) for discharges occurring on or after April 1, 2001, and 
     before October 1, 2001, shall be equal to--
       (A) the market basket percentage increase plus 1.1 
     percentage points for hospitals (other than sole community 
     hospitals) in all areas; and
       (B) the market basket percentage increase for sole 
     community hospitals.
       (c) Consideration of Price of Blood and Blood Products in 
     Market Basket Index.--The Secretary of Health and Human 
     Services shall, when next (after the date of the enactment of 
     this Act) rebasing and revising the hospital market basket 
     index (as defined in section 1886(b)(3)(B)(iii) of the Social 
     Security Act (42 U.S.C. 1395ww(b)(3)(B)(iii))), consider the 
     prices of blood and blood products purchased by hospitals and 
     determine whether those prices are adequately reflected in 
     such index.
       (d) MedPAC Study and Report Regarding Certain Hospital 
     Costs.--
       (1) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study on--
       (A) any increased costs incurred by subsection (d) 
     hospitals (as defined in paragraph (1)(B) of section 1886(d) 
     of the Social Security Act (42 U.S.C. 1395ww(d))) in 
     providing inpatient hospital services to medicare 
     beneficiaries under title XVIII of such Act during the period 
     beginning on October 1, 1983, and ending on September 30, 
     1999, that were attributable to--
       (i) complying with new blood safety measure requirements; 
     and
       (ii) providing such services using new technologies;
       (B) the extent to which the prospective payment system for 
     such services under such section provides adequate and timely 
     recognition of such increased costs;
       (C) the prospects for (and to the extent practicable, the 
     magnitude of) cost increases that hospitals will incur in 
     providing such services that are attributable to complying 
     with new blood safety measure requirements and providing such 
     services using new technologies during the 10 years after the 
     date of the enactment of this Act; and
       (D) the feasibility and advisability of establishing 
     mechanisms under such payment system to provide for more 
     timely and accurate recognition of such cost increases in the 
     future.
       (2) Consultation.--In conducting the study under this 
     subsection, the Commission shall consult with representatives 
     of the blood community, including--
       (A) hospitals;
       (B) organizations involved in the collection, processing, 
     and delivery of blood; and
       (C) organizations involved in the development of new blood 
     safety technologies.
       (3) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under paragraph (1) 
     together with such recommendations for legislation and 
     administrative action as the Commission determines 
     appropriate.
       (e) Adjustment for Inpatient Case Mix Changes.--
       (1) In general.--Section 1886(d)(3)(A) (42 U.S.C. 
     1395ww(d)(3)(A)) is amended by adding at the end the 
     following new clause:
       ``(vi) Insofar as the Secretary determines that the 
     adjustments under paragraph (4)(C)(i) for a previous fiscal 
     year (or estimates that such adjustments for a future fiscal 
     year) did (or are likely to) result in a change in aggregate 
     payments under this subsection during the fiscal year that 
     are a result of changes in the coding or classification of 
     discharges that do not reflect real changes in case mix, the 
     Secretary may adjust the average standardized amounts 
     computed under this paragraph for subsequent fiscal years so 
     as to eliminate the effect of such coding or classification 
     changes.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     applies to discharges occurring on or after October 1, 2001.

     SEC. 302. ADDITIONAL MODIFICATION IN TRANSITION FOR INDIRECT 
                   MEDICAL EDUCATION (IME) PERCENTAGE ADJUSTMENT.

       (a) In General.--Section 1886(d)(5)(B)(ii) (42 U.S.C. 
     1395ww(d)(5)(B)(ii)) is amended--
       (1) in subclause (V) by striking ``and'' at the end;
       (2) by redesignating subclause (VI) as subclause (VII);
       (3) in subclause (VII) as so redesignated, by striking 
     ``2001'' and inserting ``2002''; and
       (4) by inserting after subclause (V) the following new 
     subclause:
       ``(VI) during fiscal year 2002, `c' is equal to 1.57; 
     and''.
       (b) Special Rule for Payment for Fiscal Year 2001.--
     Notwithstanding paragraph (5)(B)(ii)(V) of section 1886(d) of 
     the Social Security Act (42 U.S.C. 1395ww(d)(5)(B)(ii)(V)), 
     for purposes of making payments for subsection (d) hospitals 
     (as defined in paragraph (1)(B) of such section) with 
     indirect costs of medical education, the indirect teaching 
     adjustment factor referred to in paragraph (5)(B)(ii) of such 
     section shall be determined, for discharges occurring on or 
     after April 1, 2001, and before October

[[Page H11032]]

     1, 2001, as if ``c'' in paragraph (5)(B)(ii)(V) of such 
     section equalled 1.66 rather than 1.54.
       (c) Conforming Amendment Relating to Determination of 
     Standardized Amount.--Section 1886(d)(2)(C)(i) (42 U.S.C. 
     1395ww(d)(2)(C)(i)) is amended by inserting ``or of section 
     302 of the Medicare, Medicaid, and SCHIP Benefits Improvement 
     and Protection Act of 2000'' after ``Balanced Budget 
     Refinement Act of 1999''.
       (d) Clerical Amendments.--Section 1886(d)(5)(B) (42 U.S.C. 
     1395ww(d)(5)(B)), as amended by subsection (a), is further 
     amended by moving the indentation of each of the following 2 
     ems to the left:
       (1) Clauses (ii), (v), and (vi).
       (2) Subclauses (I) (II), (III), (IV), (V), and (VII) of 
     clause (ii).
       (3) Subclauses (I) and (II) of clause (vi) and the flush 
     sentence at the end of such clause.

     SEC. 303. DECREASE IN REDUCTIONS FOR DISPROPORTIONATE SHARE 
                   HOSPITAL (DSH) PAYMENTS.

       (a) In General.--Section 1886(d)(5)(F)(ix) (42 U.S.C. 
     1395ww(d)(5)(F)(ix)) is amended--
       (1) in subclause (III), by striking ``each of'' and by 
     inserting ``and 2 percent, respectively'' after ``3 
     percent''; and
       (2) in subclause (IV), by striking ``4 percent'' and 
     inserting ``3 percent''.
       (b) Special Rule for Payment for Fiscal Year 2001.--
     Notwithstanding the amendment made by subsection (a)(1), for 
     purposes of making disproportionate share payments for 
     subsection (d) hospitals (as defined in section 1886(d)(1)(B) 
     of the Social Security Act (42 U.S.C. 1395ww(d)(1)(B)) for 
     fiscal year 2001, the additional payment amount otherwise 
     determined under clause (ii) of section 1886(d)(5)(F) of the 
     Social Security Act (42 U.S.C. 1395ww(d)(5)(F))--
       (1) for discharges occurring on or after October 1, 2000, 
     and before April 1, 2001, shall be adjusted as provided by 
     clause (ix)(III) of such section as in effect on the day 
     before the date of the enactment of this Act; and
       (2) for discharges occurring on or after April 1, 2001, and 
     before October 1, 2001, shall, instead of being reduced by 3 
     percent as provided by clause (ix)(III) of such section as in 
     effect after the date of the enactment of this Act, be 
     reduced by 1 percent.
       (c) Conforming Amendments Relating to Determination of 
     Standardized Amount.--Section 1886(d)(2)(C)(iv) (42 U.S.C. 
     1395ww(d)(2)(C)(iv)), is amended--
       (1) by striking ``1989 or'' and inserting ``1989,''; and
       (2) by inserting ``, or the enactment of section 303 of the 
     Medicare, Medicaid, and SCHIP Benefits Improvement and 
     Protection Act of 2000'' after ``Omnibus Budget 
     Reconciliation Act of 1990''.
       (d) Technical Amendment.--
       (1) In general.--Section 1886(d)(5)(F)(i) (42 U.S.C. 
     1395ww(d)(5)(F)(i)) is amended by striking ``and before 
     October 1, 1997,''.
       (2) Effective date.--The amendment made by paragraph (1) is 
     effective as if included in the enactment of BBA.
       (e) Reference to Changes in DSH for Rural Hospitals.--For 
     additional changes in the DSH program for rural hospitals, 
     see section 211.

     SEC. 304. WAGE INDEX IMPROVEMENTS.

       (a) Duration of Wage Index Reclassification; Use of 3-Year 
     Wage Data.--Section 1886(d)(10)(D) (42 U.S.C. 
     1395ww(d)(10)(D)) is amended by adding at the end the 
     following new clauses:
       ``(v) Any decision of the Board to reclassify a subsection 
     (d) hospital for purposes of the adjustment factor described 
     in subparagraph (C)(i)(II) for fiscal year 2001 or any fiscal 
     year thereafter shall be effective for a period of 3 fiscal 
     years, except that the Secretary shall establish procedures 
     under which a subsection (d) hospital may elect to terminate 
     such reclassification before the end of such period.
       ``(vi) Such guidelines shall provide that, in making 
     decisions on applications for reclassification for the 
     purposes described in clause (v) for fiscal year 2003 and any 
     succeeding fiscal year, the Board shall base any comparison 
     of the average hourly wage for the hospital with the average 
     hourly wage for hospitals in an area on--
       ``(I) an average of the average hourly wage amount for the 
     hospital from the most recently published hospital wage 
     survey data of the Secretary (as of the date on which the 
     hospital applies for reclassification) and such amount from 
     each of the two immediately preceding surveys; and
       ``(II) an average of the average hourly wage amount for 
     hospitals in such area from the most recently published 
     hospital wage survey data of the Secretary (as of the date on 
     which the hospital applies for reclassification) and such 
     amount from each of the two immediately preceding surveys.''.
       (b) Process To Permit Statewide Wage Index Calculation and 
     Application.--
       (1) In general.--The Secretary of Health and Human Services 
     shall establish a process (based on the voluntary process 
     utilized by the Secretary of Health and Human Services under 
     section 1848 of the Social Security Act (42 U.S.C. 1395w-4) 
     for purposes of computing and applying a statewide geographic 
     wage index) under which an appropriate statewide entity may 
     apply to have all the geographic areas in a State treated as 
     a single geographic area for purposes of computing and 
     applying the area wage index under section 1886(d)(3)(E) of 
     such Act (42 U.S.C. 1395ww(d)(3)(E)). Such process shall be 
     established by October 1, 2001, for reclassifications 
     beginning in fiscal year 2003.
       (2) Prohibition on individual hospital reclassification.--
     Notwithstanding any other provision of law, if the Secretary 
     applies a statewide geographic wage index under paragraph (1) 
     with respect to a State, any application submitted by a 
     hospital in that State under section 1886(d)(10) of the 
     Social Security Act (42 U.S.C. 1395ww(d)(10)) for geographic 
     reclassification shall not be considered.
       (c) Collection of Information on Occupational Mix.--
       (1) In general.--The Secretary of Health and Human Services 
     shall provide for the collection of data every 3 years on 
     occupational mix for employees of each subsection (d) 
     hospital (as defined in section 1886(d)(1)(D) of the Social 
     Security Act (42 U.S.C. 1395ww(d)(1)(D))) in the provision of 
     inpatient hospital services, in order to construct an 
     occupational mix adjustment in the hospital area wage index 
     applied under section 1886(d)(3)(E) of such Act (42 U.S.C. 
     1395ww(d)(3)(E)).
       (2) Application.--The third sentence of section 
     1886(d)(3)(E) (42 U.S.C. 1395ww(d)(3)(E)) is amended by 
     striking ``To the extent determined feasible by the 
     Secretary, such survey shall measure'' and inserting ``Not 
     less often than once every 3 years the Secretary (through 
     such survey or otherwise) shall measure''.
       (3) Effective date.--By not later than September 30, 2003, 
     for application beginning October 1, 2004, the Secretary 
     shall first complete--
       (A) the collection of data under paragraph (1); and
       (B) the measurement under the third sentence of section 
     1886(d)(3)(E), as amended by paragraph (2).

     SEC. 305. PAYMENT FOR INPATIENT SERVICES OF REHABILITATION 
                   HOSPITALS.

       (a) Assistance With Administrative Costs Associated With 
     Completion of Patient Assessment.--Section 1886(j)(3)(B) (42 
     U.S.C. 1395ww(j)(3)(B)) is amended by striking ``98 percent'' 
     and inserting ``98 percent for fiscal year 2001 and 100 
     percent for fiscal year 2002''.
       (b) Election To Apply Full Prospective Payment Rate Without 
     Phase-In.--
       (1) In general.--Paragraph (1) of section 1886(j) (42 
     U.S.C. 1395ww(j)) is amended--
       (A) in subparagraph (A), by inserting ``other than a 
     facility making an election under subparagraph (F)'' before 
     ``in a cost reporting period'';
       (B) in subparagraph (B), by inserting ``or, in the case of 
     a facility making an election under subparagraph (F), for any 
     cost reporting period described in such subparagraph,'' after 
     ``2002,''; and
       (C) by adding at the end the following new subparagraph:
       ``(F) Election to apply full prospective payment system.--A 
     rehabilitation facility may elect, not later than 30 days 
     before its first cost reporting period for which the payment 
     methodology under this subsection applies to the facility, to 
     have payment made to the facility under this subsection under 
     the provisions of subparagraph (B) (rather than subparagraph 
     (A)) for each cost reporting period to which such payment 
     methodology applies.''.
       (2) Clarification.--Paragraph (3)(B) of such section is 
     amended by inserting ``but not taking into account any 
     payment adjustment resulting from an election permitted under 
     paragraph (1)(F)'' after ``paragraphs (4) and (6)''.
       (c) Effective Date.--The amendments made by this section 
     take effect as if included in the enactment of BBA.

     SEC. 306. PAYMENT FOR INPATIENT SERVICES OF PSYCHIATRIC 
                   HOSPITALS.

       With respect to hospitals described in clause (i) of 
     section 1886(d)(1)(B) of the Social Security Act (42 U.S.C. 
     1395ww(d)(1)(B)) and psychiatric units described in the 
     matter following clause (v) of such section, in making 
     incentive payments to such hospitals under section 
     1886(b)(1)(A) of such Act (42 U.S.C. 1395ww(b)(1)(A)) for 
     cost reporting periods beginning on or after October 1, 2000, 
     and before October 1, 2001, the Secretary of Health and Human 
     Services, in clause (ii) of such section, shall substitute 
     ``3 percent'' for ``2 percent''.

     SEC. 307. PAYMENT FOR INPATIENT SERVICES OF LONG-TERM CARE 
                   HOSPITALS.

       (a) Increased Target Amounts and Caps for Long-Term Care 
     Hospitals Before Implementation of the Prospective Payment 
     System.--
       (1) In general.--Section 1886(b)(3) (42 U.S.C. 
     1395ww(b)(3)) is amended--
       (A) in subparagraph (H)(ii)(III), by inserting ``subject to 
     subparagraph (J),'' after ``2002,''; and
       (B) by adding at the end the following new subparagraph:
       ``(J) For cost reporting periods beginning during fiscal 
     year 2001, for a hospital described in subsection 
     (d)(1)(B)(iv)--
       ``(i) the limiting or cap amount otherwise determined under 
     subparagraph (H) shall be increased by 2 percent; and
       ``(ii) the target amount otherwise determined under 
     subparagraph (A) shall be increased by 25 percent (subject to 
     the limiting or cap amount determined under subparagraph (H), 
     as increased by clause (i)).''.
       (2) Application.--The amendments made by subsection (a) and 
     by section 122 of BBRA (113 Stat. 1501A-331) shall not be 
     taken into account in the development and implementation of 
     the prospective payment system under section 123 of BBRA (113 
     Stat. 1501A-331).
       (b) Implementation of Prospective Payment System for Long-
     Term Care Hospitals.--
       (1) Modification of requirement.--In developing the 
     prospective payment system for payment for inpatient hospital 
     services provided in long-term care hospitals described in 
     section 1886(d)(1)(B)(iv) of the Social Security Act (42 
     U.S.C. 1395ww(d)(1)(B)(iv)) under the medicare program under 
     title XVIII of such Act required under section 123 of BBRA, 
     the Secretary of Health and Human Services shall examine the

[[Page H11033]]

     feasibility and the impact of basing payment under such a 
     system on the use of existing (or refined) hospital 
     diagnosis-related groups (DRGs) that have been modified to 
     account for different resource use of long-term care hospital 
     patients as well as the use of the most recently available 
     hospital discharge data. The Secretary shall examine and may 
     provide for appropriate adjustments to the long-term hospital 
     payment system, including adjustments to DRG weights, area 
     wage adjustments, geographic reclassification, outliers, 
     updates, and a disproportionate share adjustment consistent 
     with section 1886(d)(5)(F) of the Social Security Act (42 
     U.S.C. 1395ww(d)(5)(F)).
       (2) Default implementation of system based on existing drg 
     methodology.--If the Secretary is unable to implement the 
     prospective payment system under section 123 of the BBRA by 
     October 1, 2002, the Secretary shall implement a prospective 
     payment system for such hospitals that bases payment under 
     such a system using existing hospital diagnosis-related 
     groups (DRGs), modified where feasible to account for 
     resource use of long-term care hospital patients using the 
     most recently available hospital discharge data for such 
     services furnished on or after that date.
 Subtitle B--Adjustments to PPS Payments for Skilled Nursing Facilities

     SEC. 311. ELIMINATION OF REDUCTION IN SKILLED NURSING 
                   FACILITY (SNF) MARKET BASKET UPDATE IN 2001.

       (a) In General.--Section 1888(e)(4)(E)(ii) (42 U.S.C. 
     1395yy(e)(4)(E)(ii)) is amended--
       (1) by redesignating subclauses (II) and (III) as 
     subclauses (III) and (IV), respectively;
       (2) in subclause (III), as so redesignated--
       (A) by striking ``each of fiscal years 2001 and 2002'' and 
     inserting ``each of fiscal years 2002 and 2003''; and
       (B) by striking ``minus 1 percentage point'' and inserting 
     ``minus 0.5 percentage points''; and
       (3) by inserting after subclause (I) the following new 
     subclause:

       ``(II) for fiscal year 2001, the rate computed for the 
     previous fiscal year increased by the skilled nursing 
     facility market basket percentage change for the fiscal 
     year;''.

       (b) Special Rule for Payment for Fiscal Year 2001.--
     Notwithstanding the amendments made by subsection (a), for 
     purposes of making payments for covered skilled nursing 
     facility services under section 1888(e) of the Social 
     Security Act (42 U.S.C. 1395yy(e)) for fiscal year 2001, the 
     Federal per diem rate referred to in paragraph (4)(E)(ii) of 
     such section--
       (1) for the period beginning on October 1, 2000, and ending 
     on March 31, 2001, shall be the rate determined in accordance 
     with the law as in effect on the day before the date of the 
     enactment of this Act; and
       (2) for the period beginning on April 1, 2001, and ending 
     on September 30, 2001, shall be the rate that would have been 
     determined under such section if ``plus 1 percentage point'' 
     had been substituted for ``minus 1 percentage point'' under 
     subclause (II) of such paragraph (as in effect on the day 
     before the date of the enactment of this Act).
       (c) Relation to Temporary Increase in BBRA.--The increases 
     provided under section 101 of BBRA (113 Stat. 1501A-325) 
     shall be in addition to any increase resulting from the 
     amendments made by subsection (a).
       (d) GAO Report on Adequacy of SNF Payment Rates.--Not later 
     than July 1, 2002, the Comptroller General of the United 
     States shall submit to Congress a report on the adequacy of 
     medicare payment rates to skilled nursing facilities and the 
     extent to which medicare contributes to the financial 
     viability of such facilities. Such report shall take into 
     account the role of private payors, medicaid, and case mix on 
     the financial performance of these facilities, and shall 
     include an analysis (by specific RUG classification) of the 
     number and characteristics of such facilities.
       (e) HCFA Study of Classification Systems for SNF 
     Residents.--
       (1) Study.--The Secretary of Health and Human Services 
     shall conduct a study of the different systems for 
     categorizing patients in medicare skilled nursing facilities 
     in a manner that accounts for the relative resource 
     utilization of different patient types.
       (2) Report.--Not later than January 1, 2005, the Secretary 
     shall submit to Congress a report on the study conducted 
     under subsection (a). Such report shall include such 
     recommendations regarding changes in law as may be 
     appropriate.

     SEC. 312. INCREASE IN NURSING COMPONENT OF PPS FEDERAL RATE.

       (a) In General.--The Secretary of Health and Human Services 
     shall increase by 16.66 percent the nursing component of the 
     case-mix adjusted Federal prospective payment rate specified 
     in Tables 3 and 4 of the final rule published in the Federal 
     Register by the Health Care Financing Administration on July 
     31, 2000 (65 Fed. Reg. 46770), effective for services 
     furnished on or after April 1, 2001, and before October 1, 
     2002.
       (b) GAO Audit of Nursing Staff Ratios.--
       (1) Audit.--The Comptroller General of the United States 
     shall conduct an audit of nursing staffing ratios in a 
     representative sample of medicare skilled nursing facilities. 
     Such sample shall cover selected States and shall include 
     broad representation with respect to size, ownership, 
     location, and medicare volume. Such audit shall include an 
     examination of payroll records and medicaid cost reports of 
     individual facilities.
       (2) Report.--Not later than August 1, 2002, the Comptroller 
     General shall submit to Congress a report on the audits 
     conducted under paragraph (1). Such report shall include an 
     assessment of the impact of the increased payments under this 
     subtitle on increased nursing staff ratios and shall make 
     recommendations as to whether increased payments under 
     subsection (a) should be continued.

     SEC. 313. APPLICATION OF SNF CONSOLIDATED BILLING REQUIREMENT 
                   LIMITED TO PART A COVERED STAYS.

       (a) In General.--Section 1862(a)(18) (42 U.S.C. 
     1395y(a)(18)) is amended by striking ``or of a part of a 
     facility that includes a skilled nursing facility (as 
     determined under regulations),'' and inserting ``during a 
     period in which the resident is provided covered post-
     hospital extended care services (or, for services described 
     in section 1861(s)(2)(D), which are furnished to such an 
     individual without regard to such period),''.
       (b) Conforming Amendments.--(1) Section 1842(b)(6)(E) (42 
     U.S.C. 1395u(b)(6)(E)) is amended--
       (A) by inserting ``by, or under arrangements made by, a 
     skilled nursing facility'' after ``furnished'';
       (B) by striking ``or of a part of a facility that includes 
     a skilled nursing facility (as determined under 
     regulations)''; and
       (C) by striking ``(without regard to whether or not the 
     item or service was furnished by the facility, by others 
     under arrangement with them made by the facility, under any 
     other contracting or consulting arrangement, or otherwise)''.
       (2) Section 1842(t) (42 U.S.C. 1395u(t)) is amended by 
     striking ``by a physician'' and ``or of a part of a facility 
     that includes a skilled nursing facility (as determined under 
     regulations),''.
       (3) Section 1866(a)(1)(H)(ii)(I) (42 U.S.C. 
     1395cc(a)(1)(H)(ii)(I)) is amended by inserting after ``who 
     is a resident of the skilled nursing facility'' the 
     following: ``during a period in which the resident is 
     provided covered post-hospital extended care services (or, 
     for services described in section 1861(s)(2)(D), that are 
     furnished to such an individual without regard to such 
     period)''.
       (c) Effective Date.--The amendments made by subsections (a) 
     and (b) apply to services furnished on or after January 1, 
     2001.
       (d) Oversight.--The Secretary of Health and Human Services, 
     through the Office of the Inspector General in the Department 
     of Health and Human Services or otherwise, shall monitor 
     payments made under part B of the title XVIII of the Social 
     Security Act for items and services furnished to residents of 
     skilled nursing facilities during a time in which the 
     residents are not being provided medicare covered post-
     hospital extended care services to ensure that there is not 
     duplicate billing for services or excessive services 
     provided.

     SEC. 314. ADJUSTMENT OF REHABILITATION RUGS TO CORRECT 
                   ANOMALY IN PAYMENT RATES.

       (a) Adjustment for Rehabilitation RUGS.--
       (1) In general.--For purposes of computing payments for 
     covered skilled nursing facility services under paragraph (1) 
     of section 1888(e) of the Social Security Act (42 U.S.C. 
     1395yy(e)) for such services furnished on or after April 1, 
     2001, and before the date described in section 101(c)(2) of 
     BBRA (113 Stat. 1501A-324), the Secretary of Health and Human 
     Services shall increase by 6.7 percent the adjusted Federal 
     per diem rate otherwise determined under paragraph (4) of 
     such section (but for this section) for covered skilled 
     nursing facility services for RUG-III rehabilitation groups 
     described in paragraph (2) furnished to an individual during 
     the period in which such individual is classified in such a 
     RUG-III category.
       (2) Rehabilitation groups described.--The RUG-III 
     rehabilitation groups for which the adjustment described in 
     paragraph (1) applies are RUC, RUB, RUA, RVC, RVB, RVA, RHC, 
     RHB, RHA, RMC, RMB, RMA, RLB, and RLA, as specified in Tables 
     3 and 4 of the final rule published in the Federal Register 
     by the Health Care Financing Administration on July 31, 2000 
     (65 Fed. Reg. 46770).
       (b) Correction With Respect to Rehabilitation RUGs.--
       (1) In general.--Section 101(b) of BBRA (113 Stat. 1501A-
     324) is amended by striking ``CA1, RHC, RMC, and RMB'' and 
     inserting ``and CA1''.
       (2) Effective date.--The amendment made by paragraph (1) 
     applies to services furnished on or after April 1, 2001.
       (c) Review by Office of Inspector General.--The Inspector 
     General of the Department of Health and Human Services shall 
     review the medicare payment structure for services classified 
     within rehabilitation resource utilization groups (RUGs) (as 
     in effect after the date of the enactment of the BBRA) to 
     assess whether payment incentives exist for the delivery of 
     inadequate care. Not later than October 1, 2001, the 
     Inspector General shall submit to Congress a report on such 
     review.

     SEC. 315. ESTABLISHMENT OF PROCESS FOR GEOGRAPHIC 
                   RECLASSIFICATION.

       (a) In General.--The Secretary of Health and Human Services 
     may establish a procedure for the geographic reclassification 
     of a skilled nursing facility for purposes of payment for 
     covered skilled nursing facility services under the 
     prospective payment system established under section 1888(e) 
     of the Social Security Act (42 U.S.C. 1395yy(e)). Such 
     procedure may be based upon the method for geographic 
     reclassifications for inpatient hospitals established under 
     section 1886(d)(10) of the Social Security Act (42 U.S.C. 
     1395ww(d)(10)).
       (b) Requirement for Skilled Nursing Facility Wage Data.--In 
     no case may the Secretary implement the procedure under 
     subsection (a) before such time as the Secretary has 
     collected data necessary to establish an area wage index for 
     skilled nursing facilities based on wage data from such 
     facilities.

[[Page H11034]]

                        Subtitle C--Hospice Care

     SEC. 321. FULL MARKET BASKET INCREASE FOR 2001.

       (a) In General.--Section 1814(i)(1)(C)(ii) (42 U.S.C. 
     1395f(i)(1)(C)(ii)) is amended--
       (1) by redesignating subclause (VII) as subclause (IX);
       (2) in subclause (VI)--
       (A) by striking ``through 2002'' and inserting ``through 
     2000''; and
       (B) by striking ``and'' at the end; and
       (3) by inserting after subclause (VI) the following new 
     subclauses:
       ``(VII) for fiscal year 2001, the market basket percentage 
     increase for the fiscal year;
       ``(VIII) for fiscal year 2002, the market basket percentage 
     increase for the fiscal year minus 0.25 percentage points; 
     and''.
       (b) Transition During Fiscal Year 2001.--Notwithstanding 
     the amendments made by subsection (a), for purposes of making 
     payments for hospice care under section 1814(i) of the Social 
     Security Act (42 U.S.C. 1395f(i)) for fiscal year 2001, the 
     payment rates referred to in paragraph (1)(C) of such 
     section--
       (1) for the period beginning on October 1, 2000, and ending 
     on March 31, 2001, shall be the rate determined in accordance 
     with the law as in effect on the day before the date of the 
     enactment of this Act; and
       (2) for the period beginning on April 1, 2001, and ending 
     on September 30, 2001, shall be the rate that would have been 
     determined under paragraph (1) if ``plus 1.0 percentage 
     points'' were substituted for ``minus 1.0 percentage points'' 
     under paragraph (1)(C)(ii)(VI) of such section for fiscal 
     year 2001.
       (c) Conforming Amendments to BBRA.--
       (1) In general.--Section 131 of BBRA (113 Stat. 1501A-333) 
     is repealed.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect as if included in the enactment of BBRA.
       (d) Technical Amendment.--Section 1814(a)(7)(A)(ii) (42 
     U.S.C. 1395f(a)(7)(A)(ii)) is amended by striking the period 
     at the end and inserting a semicolon.

     SEC. 322. CLARIFICATION OF PHYSICIAN CERTIFICATION.

       (a) Certification Based on Normal Course of Illness.--
       (1) In general.--Section 1814(a) (42 U.S.C. 1395f(a)) is 
     amended by adding at the end the following new sentence: 
     ``The certification regarding terminal illness of an 
     individual under paragraph (7) shall be based on the 
     physician's or medical director's clinical judgment regarding 
     the normal course of the individual's illness.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     applies to certifications made on or after the date of the 
     enactment of this Act.
       (b) Study and Report on Physician Certification Requirement 
     for Hospice Benefits.--
       (1) Study.--The Secretary of Health and Human Services 
     shall conduct a study to examine the appropriateness of the 
     certification regarding terminal illness of an individual 
     under section 1814(a)(7) of the Social Security Act (42 
     U.S.C. 1395f(a)(7)) that is required in order for such 
     individual to receive hospice benefits under the medicare 
     program under title XVIII of such Act. In conducting such 
     study, the Secretary shall take into account the effect of 
     the amendment made by subsection (a).
       (2) Report.--Not later than 2 years after the date of the 
     enactment of this Act, the Secretary of Health and Human 
     Services shall submit to Congress a report on the study 
     conducted under paragraph (1), together with any 
     recommendations for legislation that the Secretary deems 
     appropriate.

     SEC. 323. MEDPAC REPORT ON ACCESS TO, AND USE OF, HOSPICE 
                   BENEFIT.

       (a) In General.--The Medicare Payment Advisory Commission 
     shall conduct a study to examine the factors affecting the 
     use of hospice benefits under the medicare program under 
     title XVIII of the Social Security Act, including a delay in 
     the time (relative to death) of entry into a hospice program, 
     and differences in such use between urban and rural hospice 
     programs and based upon the presenting condition of the 
     patient.
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under subsection 
     (a), together with any recommendations for legislation that 
     the Commission deems appropriate.
                      Subtitle D--Other Provisions

     SEC. 331. RELIEF FROM MEDICARE PART A LATE ENROLLMENT PENALTY 
                   FOR GROUP BUY-IN FOR STATE AND LOCAL RETIREES.

       (a) In General.--Section 1818 (42 U.S.C. 1395i-2) is 
     amended--
       (1) in subsection (c)(6), by inserting before the semicolon 
     at the end the following: ``and shall be subject to reduction 
     in accordance with subsection (d)(6)''; and
       (2) by adding at the end of subsection (d) the following 
     new paragraph:
       ``(6)(A) In the case where a State, a political subdivision 
     of a State, or an agency or instrumentality of a State or 
     political subdivision thereof determines to pay, for the life 
     of each individual, the monthly premiums due under paragraph 
     (1) on behalf of each of the individuals in a qualified State 
     or local government retiree group who meets the conditions of 
     subsection (a), the amount of any increase otherwise 
     applicable under section 1839(b) (as applied and modified by 
     subsection (c)(6) of this section) with respect to the 
     monthly premium for benefits under this part for an 
     individual who is a member of such group shall be reduced by 
     the total amount of taxes paid under section 3101(b) of the 
     Internal Revenue Code of 1986 by such individual and under 
     section 3111(b) by the employers of such individual on behalf 
     of such individual with respect to employment (as defined in 
     section 3121(b) of such Code).
       ``(B) For purposes of this paragraph, the term `qualified 
     State or local government retiree group' means all of the 
     individuals who retire prior to a specified date that is 
     before January 1, 2002, from employment in 1 or more 
     occupations or other broad classes of employees of--
       ``(i) the State;
       ``(ii) a political subdivision of the State; or
       ``(iii) an agency or instrumentality of the State or 
     political subdivision of the State.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     apply to premiums for months beginning with July 1, 2001.

     SEC. 332. POSTING OF INFORMATION ON NURSING FACILITY 
                   STAFFING.

       (a) Medicare.--Section 1819(b) (42 U.S.C. 1395i-3(b)) is 
     amended by adding at the end the following new paragraph:
       ``(8) Information on nurse staffing.--
       ``(A) In general.--A skilled nursing facility shall post 
     daily for each shift the current number of licensed and 
     unlicensed nursing staff directly responsible for resident 
     care in the facility. The information shall be displayed in a 
     uniform manner (as specified by the Secretary) and in a 
     clearly visible place.
       ``(B) Publication of data.--A skilled nursing facility 
     shall, upon request, make available to the public the nursing 
     staff data described in subparagraph (A).''.
       (b) Medicaid.--Section 1919(b) (42 U.S.C. 1395r(b)) is 
     amended by adding at the end the following new paragraph:
       ``(8) Information on nurse staffing.--
       ``(A) In general.--A nursing facility shall post daily for 
     each shift the current number of licensed and unlicensed 
     nursing staff directly responsible for resident care in the 
     facility. The information shall be displayed in a uniform 
     manner (as specified by the Secretary) and in a clearly 
     visible place.
       ``(B) Publication of data.--A nursing facility shall, upon 
     request, make available to the public the nursing staff data 
     described in subparagraph (A).''.
                TITLE IV--PROVISIONS RELATING TO PART B
                Subtitle A--Hospital Outpatient Services

     SEC. 401. REVISION OF HOSPITAL OUTPATIENT PPS PAYMENT UPDATE.

       (a) In General.--Section 1833(t)(3)(C)(iii) (42 U.S.C. 
     1395l(t)(3)(C)(iii)) is amended by striking ``in each of 
     2000, 2001, and 2002'' and inserting ``in each of 2000 and 
     2002''.
       (b) Adjustment for Case Mix Changes.--
       (1) In general.--Section 1833(t)(3)(C) (42 U.S.C. 
     1395l(t)(3)(C)) is amended--
       (A) by redesignating clause (iii) as clause (iv); and
       (B) by inserting after clause (ii) the following new 
     clause:
       ``(iii) Adjustment for service mix changes.--Insofar as the 
     Secretary determines that the adjustments for service mix 
     under paragraph (2) for a previous year (or estimates that 
     such adjustments for a future year) did (or are likely to) 
     result in a change in aggregate payments under this 
     subsection during the year that are a result of changes in 
     the coding or classification of covered OPD services that do 
     not reflect real changes in service mix, the Secretary may 
     adjust the conversion factor computed under this subparagraph 
     for subsequent years so as to eliminate the effect of such 
     coding or classification changes.''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall take effect as if included in the enactment of BBA.

     SEC. 402. CLARIFYING PROCESS AND STANDARDS FOR DETERMINING 
                   ELIGIBILITY OF DEVICES FOR PASS-THROUGH 
                   PAYMENTS UNDER HOSPITAL OUTPATIENT PPS.

       (a) In General.--Section 1833(t)(6) (42 U.S.C. 1395l(t)(6)) 
     is amended--
       (1) by redesignating subparagraphs (C) and (D) as 
     subparagraphs (D) and (E), respectively; and
       (2) by striking subparagraph (B) and inserting the 
     following new subparagraphs:
       ``(B) Use of categories in determining eligibility of a 
     device for pass-through payments.--The following provisions 
     apply for purposes of determining whether a medical device 
     qualifies for additional payments under clause (ii) or (iv) 
     of subparagraph (A):
       ``(i) Establishment of initial categories.--The Secretary 
     shall initially establish under this clause categories of 
     medical devices based on type of device by April 1, 2001. 
     Such categories shall be established in a manner such that 
     each medical device that meets the requirements of clause 
     (ii) or (iv) of subparagraph (A) as of as of January 1, 2001, 
     is included in such a category and no such device is included 
     in more than one category. For purposes of the preceding 
     sentence, whether a medical device meets such requirements as 
     of such date shall be determined on the basis of the program 
     memoranda issued before such date or if the Secretary 
     determines the medical device would have been included in the 
     program memoranda but for the requirement of subparagraph 
     (A)(iv)(I). The categories may be established under this 
     clause by program memorandum or otherwise, after consultation 
     with groups representing hospitals, manufacturers of medical 
     devices, and other affected parties.
       ``(ii) Establishing criteria for additional categories.--

       ``(I) In general.--The Secretary shall establish criteria 
     that will be used for creation of additional categories 
     (other than those established under clause (i)) through 
     rulemaking (which may include use of an interim final rule 
     with comment period).
       ``(II) Standard.--Such categories shall be established 
     under this clause in a manner such that no medical device is 
     described by more than one category. Such criteria shall 
     include a test

[[Page H11035]]

     of whether the average cost of devices that would be included 
     in a category and are in use at the time the category is 
     established is not insignificant, as described in 
     subparagraph (A)(iv)(II).
       ``(III) Deadline.--Criteria shall first be established 
     under this clause by July 1, 2001. The Secretary may 
     establish in compelling circumstances categories under this 
     clause before the date such criteria are established.
       ``(IV) Adding categories.--The Secretary shall promptly 
     establish a new category of medical devices under this clause 
     for any medical device that meets the requirements of 
     subparagraph (A)(iv) and for which none of the categories in 
     effect (or that were previously in effect) is appropriate.

       ``(iii) Period for which category is in effect.--A category 
     of medical devices established under clause (i) or clause 
     (ii) shall be in effect for a period of at least 2 years, but 
     not more than 3 years, that begins--

       ``(I) in the case of a category established under clause 
     (i), on the first date on which payment was made under this 
     paragraph for any device described by such category 
     (including payments made during the period before April 1, 
     2001); and
       ``(II) in the case of any other category, on the first date 
     on which payment is made under this paragraph for any medical 
     device that is described by such category.

       ``(iv) Requirements treated as met.--A medical device shall 
     be treated as meeting the requirements of subparagraph 
     (A)(iv) if--

       ``(I) the device is described by a category established and 
     in effect under clause (i); or
       ``(II) the device is described by a category established 
     and in effect under clause (ii) and an application under 
     section 515 of the Federal Food, Drug, and Cosmetic Act has 
     been approved with respect to the device, or the device has 
     been cleared for market under section 510(k) of such Act, or 
     the device is exempt from the requirements of section 510(k) 
     of such Act pursuant to subsection (l) or (m) of section 510 
     of such Act or section 520(g) of such Act.

     Nothing in this clause shall be construed as requiring an 
     application or prior approval (other than that described in 
     subclause (II)) in order for a covered device to qualify for 
     payment under this paragraph.
       ``(C) Limited period of payment.--
       ``(i) Drugs and biologicals.--The payment under this 
     paragraph with respect to a drug or biological shall only 
     apply during a period of at least 2 years, but not more than 
     3 years, that begins--

       ``(I) on the first date this subsection is implemented in 
     the case of a drug or biological described in clause (i), 
     (ii), or (iii) of subparagraph (A) and in the case of a drug 
     or biological described in subparagraph (A)(iv) and for which 
     payment under this part is made as an outpatient hospital 
     service before such first date; or
       ``(II) in the case of a drug or biological described in 
     subparagraph (A)(iv) not described in subclause (I), on the 
     first date on which payment is made under this part for the 
     drug or biological as an outpatient hospital service.

       ``(ii) Medical devices.--Payment shall be made under this 
     paragraph with respect to a medical device only if such 
     device--

       ``(I) is described by a category of medical devices 
     established and in effect under subparagraph (B); and
       ``(II) is provided as part of a service (or group of 
     services) paid for under this subsection and provided during 
     the period for which such category is in effect under such 
     subparagraph.''.

       (b) Conforming Amendments.--Section 1833(t) (42 U.S.C. 
     1395l(t)) is further amended--
       (1) in paragraph (6)(A)(iv)(II), by striking ``the cost of 
     the device, drug, or biological'' and inserting ``the cost of 
     the drug or biological or the average cost of the category of 
     devices'';
       (2) in paragraph (6)(D) (as redesignated by subsection 
     (a)(1)), by striking ``subparagraph (D)(iii)'' in the matter 
     preceding clause (i) and inserting ``subparagraph (E)(iii)''; 
     and
       (3) in paragraph (12)(E), by striking ``additional payments 
     (consistent with paragraph (6)(B))'' and inserting 
     ``additional payments, the determination and deletion of 
     initial and new categories (consistent with subparagraphs (B) 
     and (C) of paragraph (6))''.
       (c) Effective Date.--The amendments made by this section 
     take effect on the date of the enactment of this Act.
       (d) Transition.--
       (1) In general.--In the case of a medical device provided 
     as part of a service (or group of services) furnished during 
     the period before initial categories are implemented under 
     subparagraph (B)(i) of section 1833(t)(6) of the Social 
     Security Act (as amended by subsection (a)), payment shall be 
     made for such device under such section in accordance with 
     the provisions in effect before the date of the enactment of 
     this Act, except that, beginning on the date that is 30 days 
     after the date of the enactment of this Act, payment shall 
     also be made for such a device that is not included in a 
     program memorandum described in such subparagraph if the 
     Secretary of Health and Human Services determines that the 
     device is likely to be described by such an initial category 
     or would have been included in such program memoranda but for 
     the requirement of subparagraph (A)(iv)(I) of that section.
       (2) Application of current process.--Notwithstanding any 
     other provision of law, the Secretary shall continue to 
     accept applications with respect to medical devices under the 
     process established pursuant to paragraph (6) of section 
     1833(t) of the Social Security Act (as in effect on the day 
     before the date of the enactment of this Act) through 
     December 1, 2000, and any device--
       (A) with respect to which an application was submitted 
     (pursuant to such process) on or before such date; and
       (B) that meets the requirements of clause (ii) or (iv) of 
     subparagraph (A) of such paragraph (as determined pursuant to 
     such process),

     shall be treated as a device with respect to which an initial 
     category is required to be established under subparagraph 
     (B)(i) of such paragraph (as amended by subsection (a)(2)).

     SEC. 403. APPLICATION OF OPD PPS TRANSITIONAL CORRIDOR 
                   PAYMENTS TO CERTAIN HOSPITALS THAT DID NOT 
                   SUBMIT A 1996 COST REPORT.

       (a) In General.--Section 1833(t)(7)(F)(ii)(I) (42 U.S.C. 
     1395l(t)(7)(F)(ii)(I)) is amended by inserting ``(or in the 
     case of a hospital that did not submit a cost report for such 
     period, during the first subsequent cost reporting period 
     ending before 2001 for which the hospital submitted a cost 
     report)'' after ``1996''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect as if included in the enactment of BBRA.

     SEC. 404. APPLICATION OF RULES FOR DETERMINING PROVIDER-BASED 
                   STATUS FOR CERTAIN ENTITIES.

       (a) Grandfather.--Notwithstanding any other provision of 
     law, for purposes of making determinations of provider-based 
     status under title XVIII of the Social Security Act on or 
     after October 1, 2000, any facility or organization that is 
     treated as provider-based in relation to a hospital or 
     critical access hospital under such title as of October 1, 
     2000--
       (1) shall continue to be treated as provider-based in 
     relation to such hospital or critical access hospital under 
     such title during the 2-year period beginning on October 1, 
     2000; and
       (2) the requirements, limitations, and exclusions specified 
     in paragraphs (d), (e), (f), and (h) of section 413.65 of 
     title 42, Code of Federal Regulations shall not apply to such 
     facility or organization in relation to such hospital or 
     critical access hospital until after the end of such 2-year 
     period.
       (b) Temporary Criteria.--For purposes of title XVIII of the 
     Social Security Act--
       (1) a facility or organization for which a determination of 
     provider-based status in relation to a hospital or critical 
     access hospital is requested on or after October 1, 2000, and 
     before October 1, 2002, may not be treated as not having 
     provider-based status in relation to such a hospital for any 
     period before a determination is made with respect to such 
     status pursuant to such request; and
       (2) in making a determination with respect to such status 
     for any facility or organization in relationship to such a 
     hospital on or after October 1, 2000, the following rules 
     apply:
       (A) The facility or organization shall be treated as 
     satisfying any requirements and standards for geographic 
     location in relation to such a hospital if the facility or 
     organization--
       (i) satisfies the requirements of section 413.65(d)(7) of 
     title 42, Code of Federal Regulations; or
       (ii) is located not more than 35 miles from the main campus 
     of the hospital or critical access hospital.
       (B) The facility or organization shall be treated as 
     satisfying any of the requirements and standards for 
     geographic location in relation to such a hospital if the 
     facility or organization is owned and operated by a hospital 
     or critical access hospital that--
       (i) is owned or operated by a unit of State or local 
     government, is a public or private nonprofit corporation that 
     is formally granted governmental powers by a unit of State or 
     local government, or is a private hospital that has a 
     contract with a State or local government that includes the 
     operation of clinics located off the main campus of the 
     hospital to assure access in a well-defined service area to 
     health care services for low-income individuals who are not 
     entitled to benefits under title XVIII (or medical assistance 
     under a State plan under title XIX) of such Act; and
       (ii) has a disproportionate share adjustment percentage (as 
     determined under section 1886(d)(5)(F) of such Act (42 U.S.C. 
     1395ww(d)(5)(F))) greater than 11.75 percent or is described 
     in clause (i)(II) of such section.
       (c) Definitions.--For purposes of this section, the terms 
     ``hospital'' and ``critical access hospital'' have the 
     meanings given such terms in subsections (e) and (mm)(1), 
     respectively, of section 1861 of the Social Security Act (42 
     U.S.C. 1395x).

     SEC. 405. TREATMENT OF CHILDREN'S HOSPITALS UNDER PROSPECTIVE 
                   PAYMENT SYSTEM.

       (a) In General.--Section 1833(t) (42 U.S.C. 1395l(t)) is 
     amended--
       (1) in the heading of paragraph (7)(D)(ii), by inserting 
     ``and children's hospitals'' after ``cancer hospitals''; and
       (2) in paragraphs (7)(D)(ii) and (11), by striking 
     ``section 1886(d)(1)(B)(v)'' and inserting ``clause (iii) or 
     (v) of section 1886(d)(1)(B)''.
       (b) Effective Date.--The amendments made by subsection (a) 
     apply as if included in the enactment of section 202 of BBRA 
     (113 Stat. 1501A-342).

     SEC. 406. INCLUSION OF TEMPERATURE MONITORED CRYOABLATION IN 
                   TRANSITIONAL PASS-THROUGH FOR CERTAIN MEDICAL 
                   DEVICES, DRUGS, AND BIOLOGICALS UNDER OPD PPS.

       (a) In General.--Section 1833(t)(6)(A)(ii) (42 U.S.C. 
     1395l(t)(6)(A)(ii)) is amended by inserting ``or temperature 
     monitored cryoablation'' after ``device of brachytherapy''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to devices furnished on or after April 1, 2001.
        Subtitle B--Provisions Relating to Physicians' Services

     SEC. 411. GAO STUDIES RELATING TO PHYSICIANS' SERVICES.

       (a) Study of Specialist Physicians' Services Furnished in 
     Physicians' Offices and Hospital Outpatient Department 
     Services.--

[[Page H11036]]

       (1) Study.--The Comptroller General of the United States 
     shall conduct a study to examine the appropriateness of 
     furnishing in physicians' offices specialist physicians' 
     services (such as gastrointestinal endoscopic physicians' 
     services) which are ordinarily furnished in hospital 
     outpatient departments. In conducting this study, the 
     Comptroller General shall--
       (A) review available scientific and clinical evidence about 
     the safety of performing procedures in physicians' offices 
     and hospital outpatient departments;
       (B) assess whether resource-based practice expense relative 
     values established by the Secretary of Health and Human 
     Services under the medicare physician fee schedule under 
     section 1848 of the Social Security Act (42 U.S.C. 1395w-4) 
     for such specialist physicians' services furnished in 
     physicians' offices and hospital outpatient departments 
     create an incentive to furnish such services in physicians' 
     offices instead of hospital outpatient departments; and
       (C) assess the implications for access to care for medicare 
     beneficiaries if the medicare program were not to cover such 
     services in physicians' offices.
       (2) Report.--Not later than July 1, 2001, the Comptroller 
     General shall submit to Congress a report on such study and 
     include such recommendations as the Comptroller General 
     determines to be appropriate.
       (b) Study of the Resource-Based Practice Expense System.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study on the refinements to the practice 
     expense relative value units during the transition to a 
     resource-based practice expense system for physician payments 
     under the medicare program under title XVIII of the Social 
     Security Act. Such study shall examine how the Secretary of 
     Health and Human Services has accepted and used the practice 
     expense data submitted under section 212 of BBRA (113 Stat. 
     1501A-350).
       (2) Report.--Not later than July 1, 2001, the Comptroller 
     General shall submit to Congress a report on the study 
     conducted under paragraph (1) together with recommendations 
     regarding--
       (A) improvements in the process for acceptance and use of 
     practice expense data under section 212 of BBRA;
       (B) any change or adjustment that is appropriate to ensure 
     full access to a spectrum of care for beneficiaries under the 
     medicare program; and
       (C) the appropriateness of payments to physicians.

     SEC. 412. PHYSICIAN GROUP PRACTICE DEMONSTRATION.

       (a) In General.--Title XVIII is amended by inserting after 
     section 1866 the following new sections:


 ``demonstration of application of physician volume increases to group 
                               practices

       ``Sec. 1866A. (a) Demonstration Program Authorized.--
       ``(1) In general.--The Secretary shall conduct 
     demonstration projects to test and, if proven effective, 
     expand the use of incentives to health care groups 
     participating in the program under this title that--
       ``(A) encourage coordination of the care furnished to 
     individuals under the programs under parts A and B by 
     institutional and other providers, practitioners, and 
     suppliers of health care items and services;
       ``(B) encourage investment in administrative structures and 
     processes to ensure efficient service delivery; and
       ``(C) reward physicians for improving health outcomes.

     Such projects shall focus on the efficiencies of furnishing 
     health care in a group-practice setting as compared to the 
     efficiencies of furnishing health care in other health care 
     delivery systems.
       ``(2) Administration by contract.--Except as otherwise 
     specifically provided, the Secretary may administer the 
     program under this section in accordance with section 1866B.
       ``(3) Definitions.--For purposes of this section, terms 
     have the following meanings:
       ``(A) Physician.--Except as the Secretary may otherwise 
     provide, the term `physician' means any individual who 
     furnishes services which may be paid for as physicians' 
     services under this title.
       ``(B) Health care group.--The term `health care group' 
     means a group of physicians (as defined in subparagraph (A)) 
     organized at least in part for the purpose of providing 
     physicians' services under this title. As the Secretary finds 
     appropriate, a health care group may include a hospital and 
     any other individual or entity furnishing items or services 
     for which payment may be made under this title that is 
     affiliated with the health care group under an arrangement 
     structured so that such individual or entity participates in 
     a demonstration under this section and will share in any 
     bonus earned under subsection (d).
       ``(b) Eligibility Criteria.--
       ``(1) In general.--The Secretary is authorized to establish 
     criteria for health care groups eligible to participate in a 
     demonstration under this section, including criteria relating 
     to numbers of health care professionals in, and of patients 
     served by, the group, scope of services provided, and quality 
     of care.
       ``(2) Payment method.--A health care group participating in 
     the demonstration under this section shall agree with respect 
     to services furnished to beneficiaries within the scope of 
     the demonstration (as determined under subsection (c))--
       ``(A) to be paid on a fee-for-service basis; and
       ``(B) that payment with respect to all such services 
     furnished by members of the health care group to such 
     beneficiaries shall (where determined appropriate by the 
     Secretary) be made to a single entity.
       ``(3) Data reporting.--A health care group participating in 
     a demonstration under this section shall report to the 
     Secretary such data, at such times and in such format as the 
     Secretary requires, for purposes of monitoring and evaluation 
     of the demonstration under this section.
       ``(c) Patients Within Scope of Demonstration.--
       ``(1) In general.--The Secretary shall specify, in 
     accordance with this subsection, the criteria for identifying 
     those patients of a health care group who shall be considered 
     within the scope of the demonstration under this section for 
     purposes of application of subsection (d) and for assessment 
     of the effectiveness of the group in achieving the objectives 
     of this section.
       ``(2) Other criteria.--The Secretary may establish 
     additional criteria for inclusion of beneficiaries within a 
     demonstration under this section, which may include frequency 
     of contact with physicians in the group or other factors or 
     criteria that the Secretary finds to be appropriate.
       ``(3) Notice requirements.--In the case of each beneficiary 
     determined to be within the scope of a demonstration under 
     this section with respect to a specific health care group, 
     the Secretary shall ensure that such beneficiary is notified 
     of the incentives, and of any waivers of coverage or payment 
     rules, applicable to such group under such demonstration.
       ``(d) Incentives.--
       ``(1) Performance target.--The Secretary shall establish 
     for each health care group participating in a demonstration 
     under this section--
       ``(A) a base expenditure amount, equal to the average total 
     payments under parts A and B for patients served by the 
     health care group on a fee-for-service basis in a base period 
     determined by the Secretary; and
       ``(B) an annual per capita expenditure target for patients 
     determined to be within the scope of the demonstration, 
     reflecting the base expenditure amount adjusted for risk and 
     expected growth rates.
       ``(2) Incentive bonus.--The Secretary shall pay to each 
     participating health care group (subject to paragraph (4)) a 
     bonus for each year under the demonstration equal to a 
     portion of the medicare savings realized for such year 
     relative to the performance target.
       ``(3) Additional bonus for process and outcome 
     improvements.--At such time as the Secretary has established 
     appropriate criteria based on evidence the Secretary 
     determines to be sufficient, the Secretary shall also pay to 
     a participating health care group (subject to paragraph (4)) 
     an additional bonus for a year, equal to such portion as the 
     Secretary may designate of the saving to the program under 
     this title resulting from process improvements made by and 
     patient outcome improvements attributable to activities of 
     the group.
       ``(4) Limitation.--The Secretary shall limit bonus payments 
     under this section as necessary to ensure that the aggregate 
     expenditures under this title (inclusive of bonus payments) 
     with respect to patients within the scope of the 
     demonstration do not exceed the amount which the Secretary 
     estimates would be expended if the demonstration projects 
     under this section were not implemented.


        ``provisions for administration of demonstration program

       ``Sec. 1866B. (a) General Administrative Authority.--
       ``(1) Beneficiary eligibility.--Except as otherwise 
     provided by the Secretary, an individual shall only be 
     eligible to receive benefits under the program under section 
     1866A (in this section referred to as the `demonstration 
     program') if such individual--
       ``(A) is enrolled in under the program under part B and 
     entitled to benefits under part A; and
       ``(B) is not enrolled in a Medicare+Choice plan under part 
     C, an eligible organization under a contract under section 
     1876 (or a similar organization operating under a 
     demonstration project authority), an organization with an 
     agreement under section 1833(a)(1)(A), or a PACE program 
     under section 1894.
       ``(2) Secretary's discretion as to scope of program.--The 
     Secretary may limit the implementation of the demonstration 
     program to--
       ``(A) a geographic area (or areas) that the Secretary 
     designates for purposes of the program, based upon such 
     criteria as the Secretary finds appropriate;
       ``(B) a subgroup (or subgroups) of beneficiaries or 
     individuals and entities furnishing items or services 
     (otherwise eligible to participate in the program), selected 
     on the basis of the number of such participants that the 
     Secretary finds consistent with the effective and efficient 
     implementation of the program;
       ``(C) an element (or elements) of the program that the 
     Secretary determines to be suitable for implementation; or
       ``(D) any combination of any of the limits described in 
     subparagraphs (A) through (C).
       ``(3) Voluntary receipt of items and services.--Items and 
     services shall be furnished to an individual under the 
     demonstration program only at the individual's election.
       ``(4) Agreements.--The Secretary is authorized to enter 
     into agreements with individuals and entities to furnish 
     health care items and services to beneficiaries under the 
     demonstration program.
       ``(5) Program standards and criteria.--The Secretary shall 
     establish performance standards for the demonstration program 
     including, as applicable, standards for quality of health 
     care items and services, cost-effectiveness, beneficiary 
     satisfaction, and such other factors as the Secretary finds 
     appropriate. The eligibility of individuals or entities for 
     the initial award, continuation, and renewal of agreements to 
     provide health care items and services under the program 
     shall be conditioned, at a minimum, on performance that meets 
     or exceeds such standards.

[[Page H11037]]

       ``(6) Administrative review of decisions affecting 
     individuals and entities furnishing services.--An individual 
     or entity furnishing services under the demonstration program 
     shall be entitled to a review by the program administrator 
     (or, if the Secretary has not contracted with a program 
     administrator, by the Secretary) of a decision not to enter 
     into, or to terminate, or not to renew, an agreement with the 
     entity to provide health care items or services under the 
     program.
       ``(7) Secretary's review of marketing materials.--An 
     agreement with an individual or entity furnishing services 
     under the demonstration program shall require the individual 
     or entity to guarantee that it will not distribute materials 
     that market items or services under the program without the 
     Secretary's prior review and approval.
       ``(8) Payment in full.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     an individual or entity receiving payment from the Secretary 
     under a contract or agreement under the demonstration program 
     shall agree to accept such payment as payment in full, and 
     such payment shall be in lieu of any payments to which the 
     individual or entity would otherwise be entitled under this 
     title.
       ``(B) Collection of deductibles and coinsurance.--Such 
     individual or entity may collect any applicable deductible or 
     coinsurance amount from a beneficiary.
       ``(b) Contracts for Program Administration.--
       ``(1) In general.--The Secretary may administer the 
     demonstration program through a contract with a program 
     administrator in accordance with the provisions of this 
     subsection.
       ``(2) Scope of program administrator contracts.--The 
     Secretary may enter into such contracts for a limited 
     geographic area, or on a regional or national basis.
       ``(3) Eligible contractors.--The Secretary may contract for 
     the administration of the program with--
       ``(A) an entity that, under a contract under section 1816 
     or 1842, determines the amount of and makes payments for 
     health care items and services furnished under this title; or
       ``(B) any other entity with substantial experience in 
     managing the type of program concerned.
       ``(4) Contract award, duration, and renewal.--
       ``(A)  In general.--A contract under this subsection shall 
     be for an initial term of up to three years, renewable for 
     additional terms of up to three years.
       ``(B) Noncompetitive award and renewal for entities 
     administering part a or part b payments.--The Secretary may 
     enter or renew a contract under this subsection with an 
     entity described in paragraph (3)(A) without regard to the 
     requirements of section 5 of title 41, United States Code.
       ``(5) Applicability of federal acquisition regulation.--The 
     Federal Acquisition Regulation shall apply to program 
     administration contracts under this subsection.
       ``(6) Performance standards.--The Secretary shall establish 
     performance standards for the program administrator 
     including, as applicable, standards for the quality and cost-
     effectiveness of the program administered, and such other 
     factors as the Secretary finds appropriate. The eligibility 
     of entities for the initial award, continuation, and renewal 
     of program administration contracts shall be conditioned, at 
     a minimum, on performance that meets or exceeds such 
     standards.
       ``(7) Functions of program administrator.--A program 
     administrator shall perform any or all of the following 
     functions, as specified by the Secretary:
       ``(A) Agreements with entities furnishing health care items 
     and services.--Determine the qualifications of entities 
     seeking to enter or renew agreements to provide services 
     under the demonstration program, and as appropriate enter or 
     renew (or refuse to enter or renew) such agreements on behalf 
     of the Secretary.
       ``(B) Establishment of payment rates.--Negotiate or 
     otherwise establish, subject to the Secretary's approval, 
     payment rates for covered health care items and services.
       ``(C) Payment of claims or fees.--Administer payments for 
     health care items or services furnished under the program.
       ``(D) Payment of bonuses.--Using such guidelines as the 
     Secretary shall establish, and subject to the approval of the 
     Secretary, make bonus payments as described in subsection 
     (c)(2)(A)(ii) to entities furnishing items or services for 
     which payment may be made under the program.
       ``(E) Oversight.--Monitor the compliance of individuals and 
     entities with agreements under the program with the 
     conditions of participation.
       ``(F) Administrative review.--Conduct reviews of adverse 
     determinations specified in subsection (a)(6).
       ``(G) Review of marketing materials.--Conduct a review of 
     marketing materials proposed by an entity furnishing services 
     under the program.
       ``(H) Additional functions.--Perform such other functions 
     as the Secretary may specify.
       ``(8) Limitation of liability.--The provisions of section 
     1157(b) shall apply with respect to activities of contractors 
     and their officers, employees, and agents under a contract 
     under this subsection.
       ``(9) Information sharing.--Notwithstanding section 1106 
     and section 552a of title 5, United States Code, the 
     Secretary is authorized to disclose to an entity with a 
     program administration contract under this subsection such 
     information (including medical information) on individuals 
     receiving health care items and services under the program as 
     the entity may require to carry out its responsibilities 
     under the contract.
       ``(c) Rules Applicable to Both Program Agreements and 
     Program Administration Contracts.--
       ``(1) Records, reports, and audits.--The Secretary is 
     authorized to require entities with agreements to provide 
     health care items or services under the demonstration 
     program, and entities with program administration contracts 
     under subsection (b), to maintain adequate records, to afford 
     the Secretary access to such records (including for audit 
     purposes), and to furnish such reports and other materials 
     (including audited financial statements and performance data) 
     as the Secretary may require for purposes of implementation, 
     oversight, and evaluation of the program and of individuals' 
     and entities' effectiveness in performance of such agreements 
     or contracts.
       ``(2) Bonuses.--Notwithstanding any other provision of law, 
     but subject to subparagraph (B)(ii), the Secretary may make 
     bonus payments under the demonstration program from the 
     Federal Health Insurance Trust Fund and the Federal 
     Supplementary Medical Insurance Trust Fund in amounts that do 
     not exceed the amounts authorized under the program in 
     accordance with the following:
       ``(A) Payments to program administrators.--The Secretary 
     may make bonus payments under the program to program 
     administrators.
       ``(B) Payments to entities furnishing services.--
       ``(i) In general.--Subject to clause (ii), the Secretary 
     may make bonus payments to individuals or entities furnishing 
     items or services for which payment may be made under the 
     demonstration program, or may authorize the program 
     administrator to make such bonus payments in accordance with 
     such guidelines as the Secretary shall establish and subject 
     to the Secretary's approval.
       ``(ii) Limitations.--The Secretary may condition such 
     payments on the achievement of such standards related to 
     efficiency, improvement in processes or outcomes of care, or 
     such other factors as the Secretary determines to be 
     appropriate.
       ``(3) Antidiscrimination limitation.--The Secretary shall 
     not enter into an agreement with an entity to provide health 
     care items or services under the demonstration program, or 
     with an entity to administer the program, unless such entity 
     guarantees that it will not deny, limit, or condition the 
     coverage or provision of benefits under the program, for 
     individuals eligible to be enrolled under such program, based 
     on any health status-related factor described in section 
     2702(a)(1) of the Public Health Service Act.
       ``(d) Limitations on Judicial Review.--The following 
     actions and determinations with respect to the demonstration 
     program shall not be subject to review by a judicial or 
     administrative tribunal:
       ``(1) Limiting the implementation of the program under 
     subsection (a)(2).
       ``(2) Establishment of program participation standards 
     under subsection (a)(5) or the denial or termination of, or 
     refusal to renew, an agreement with an entity to provide 
     health care items and services under the program.
       ``(3) Establishment of program administration contract 
     performance standards under subsection (b)(6), the refusal to 
     renew a program administration contract, or the 
     noncompetitive award or renewal of a program administration 
     contract under subsection (b)(4)(B).
       ``(5) Establishment of payment rates, through negotiation 
     or otherwise, under a program agreement or a program 
     administration contract.
       ``(6) A determination with respect to the program (where 
     specifically authorized by the program authority or by 
     subsection (c)(2))--
       ``(A) as to whether cost savings have been achieved, and 
     the amount of savings; or
       ``(B) as to whether, to whom, and in what amounts bonuses 
     will be paid.
       ``(e) Application Limited to Parts A and B.--None of the 
     provisions of this section or of the demonstration program 
     shall apply to the programs under part C.
       ``(f) Reports to Congress.--Not later than two years after 
     the date of the enactment of this section, and biennially 
     thereafter for six years, the Secretary shall report to 
     Congress on the use of authorities under the demonstration 
     program. Each report shall address the impact of the use of 
     those authorities on expenditures, access, and quality under 
     the programs under this title.''.
       (b) GAO Report.--Not later than 2 years after the date on 
     which the demonstration project under section 1866A of the 
     Social Security Act, as added by subsection (a), is 
     implemented, the Comptroller General of the United States 
     shall submit to Congress a report on such demonstration 
     project. The report shall include such recommendations with 
     respect to changes to the demonstration project that the 
     Comptroller General determines appropriate.

     SEC. 413. STUDY ON ENROLLMENT PROCEDURES FOR GROUPS THAT 
                   RETAIN INDEPENDENT CONTRACTOR PHYSICIANS.

       (a) In General.--The Comptroller General of the United 
     States shall conduct a study of the current medicare 
     enrollment process for groups that retain independent 
     contractor physicians with particular emphasis on hospital-
     based physicians, such as emergency department staffing 
     groups. In conducting the evaluation, the Comptroller General 
     shall consult with groups that retain independent contractor 
     physicians and shall--
       (1) review the issuance of individual medicare provider 
     numbers and the possible medicare program integrity 
     vulnerabilities of the current process;
       (2) review direct and indirect costs associated with the 
     current process incurred by the medicare program and groups 
     that retain independent contractor physicians;

[[Page H11038]]

       (3) assess the effect on program integrity by the 
     enrollment of groups that retain independent contractor 
     hospital-based physicians; and
       (4) develop suggested procedures for the enrollment of 
     these groups.
       (b) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under subsection 
     (a).
                       Subtitle C--Other Services

     SEC. 421. 1-YEAR EXTENSION OF MORATORIUM ON THERAPY CAPS; 
                   REPORT ON STANDARDS FOR SUPERVISION OF PHYSICAL 
                   THERAPY ASSISTANTS.

       (a) In General.--Section 1833(g)(4) (42 U.S.C. 1395l(g)(4)) 
     is amended by striking ``2000 and 2001.'' and inserting 
     ``2000, 2001, and 2002.''.
       (b) Conforming Amendment To Continue Focused Medical 
     Reviews of Claims During Moratorium Period.--Section 
     221(a)(2) of BBRA (113 Stat. 1501A-351) is amended by 
     striking ``(under the amendment made by paragraph (1)(B))''.
       (c) Study on Standards for Supervision of Physical 
     Therapist Assistants.--
       (1) Study.--The Secretary of Health and Human Services 
     shall conduct a study of the implications--
       (A) of eliminating the ``in the room'' supervision 
     requirement for medicare payment for services of physical 
     therapy assistants who are supervised by physical therapists; 
     and
       (B) of such requirement on the cap imposed under section 
     1833(g) of the Social Security Act (42 U.S.C. 1395l(g)) on 
     physical therapy services.
       (2) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Secretary shall submit to Congress 
     a report on the study conducted under paragraph (1).

     SEC. 422. UPDATE IN RENAL DIALYSIS COMPOSITE RATE.

       (a) Update.--
       (1) In general.--The last sentence of section 1881(b)(7) 
     (42 U.S.C. 1395rr(b)(7)) is amended by striking ``for such 
     services furnished on or after January 1, 2001, by 1.2 
     percent'' and inserting ``for such services furnished on or 
     after January 1, 2001, by 2.4 percent''.
       (2) Prohibition on Exemptions.--
       (A) In general.--Subject to subparagraph (B), the Secretary 
     of Health and Human Services may not provide for an exception 
     under section 1881(b)(7) of the Social Security Act (42 
     U.S.C. 1395rr(b)(7)) on or after December 31, 2000.
       (B) Special rules for 2000.--
       (i) In general.--Any exemption rate under such section 
     1881(b)(7) in effect on December 31, 2000, shall continue in 
     effect so long as such rate is greater than the composite 
     rate as updated by the amendment made by paragraph (1).
       (ii) Resubmission of certain applications.--In the case of 
     an application for an exemption rate under such section that 
     was filed by a facility during 2000 that was not approved by 
     the Secretary of Health and Human Services, the facility may 
     submit an application for an exemption rate for that year by 
     not later than July 1, 2001.
       (b) Development of ESRD Market Basket.--
       (1) Development.--The Secretary of Health and Human 
     Services shall collect data and develop an ESRD market basket 
     whereby the Secretary can estimate, before the beginning of a 
     year, the percentage by which the costs for the year of the 
     mix of labor and nonlabor goods and services included in the 
     ESRD composite rate under section 1881(b)(7) of the Social 
     Security Act (42 U.S.C. 1395rr(b)(7)) will exceed the costs 
     of such mix of goods and services for the preceding year. In 
     developing such index, the Secretary may take into account 
     measures of changes in--
       (A) technology used in furnishing dialysis services;
       (B) the manner or method of furnishing dialysis services; 
     and
       (C) the amounts by which the payments under such section 
     for all services billed by a facility for a year exceed the 
     aggregate allowable audited costs of such services for such 
     facility for such year.
       (2) Report.--The Secretary of Health and Human Services 
     shall submit to Congress a report on the index developed 
     under paragraph (1) no later than July 1, 2002, and shall 
     include in the report recommendations on the appropriateness 
     of an annual or periodic update mechanism for renal dialysis 
     services under the medicare program under title XVIII of the 
     Social Security Act based on such index.
       (c) Inclusion of Additional Services in Composite Rate.--
       (1) Development.--The Secretary of Health and Human 
     Services shall develop a system which includes, to the 
     maximum extent feasible, in the composite rate used for 
     payment under section 1881(b)(7) of the Social Security Act 
     (42 U.S.C. 1395rr(b)(7)), payment for clinical diagnostic 
     laboratory tests and drugs (including drugs paid under 
     section 1881(b)(11)(B) of such Act (42 U.S.C. 
     1395rr(b)(11)(B)) that are routinely used in furnishing 
     dialysis services to medicare beneficiaries but which are 
     currently separately billable by renal dialysis facilities.
       (2) Report.--The Secretary shall include, as part of the 
     report submitted under subsection (b)(2), a report on the 
     system developed under paragraph (1) and recommendations on 
     the appropriateness of incorporating the system into medicare 
     payment for renal dialysis services.
       (d) GAO Study on Access to Services.--
       (1) Study.--The Comptroller General of the United States 
     shall study access of medicare beneficiaries to renal 
     dialysis services. Such study shall include whether there is 
     a sufficient supply of facilities to furnish needed renal 
     dialysis services, whether medicare payment levels are 
     appropriate, taking into account audited costs of facilities 
     for all services furnished, to ensure continued access to 
     such services, and improvements in access (and quality of 
     care) that may result in the increased use of long nightly 
     and short daily hemodialysis modalities.
       (2) Report.--Not later than January 1, 2003, the 
     Comptroller General shall submit to Congress a report on the 
     study conducted under paragraph (1).

     SEC. 423. PAYMENT FOR AMBULANCE SERVICES.

       (a) Restoration of Full CPI Increase for 2001.--Section 
     1834(l)(3) (42 U.S.C. 1395m(l)(3)) is amended by striking 
     ``reduced in the case of 2001 and 2002'' each place it 
     appears and inserting ``reduced in the case of 2002''.
       (b) Mileage Payments.--Section 1834(l)(2)(E) (42 U.S.C. 
     1395m(l)(2)(E)) is amended by inserting before the period at 
     the end the following: ``, except that, beginning on the date 
     on which the Secretary implements such fee schedule, such 
     phase-in shall provide for full payment of any national 
     mileage rate for ambulance services provided by suppliers 
     that are paid by carriers in any of the 50 States where 
     payment by a carrier for such services for all such suppliers 
     in such State did not, prior to the implementation of the fee 
     schedule, include a separate amount for all mileage within 
     the county from which the beneficiary is transported''.
       (c) Effective Date.--The amendment made by subsection (a) 
     applies to services furnished on or after the date on which 
     the Secretary of Health and Human Services implements the fee 
     schedule under section 1834(l) of the Social Security Act (42 
     U.S.C. 1395m(l)).

     SEC. 424. AMBULATORY SURGICAL CENTERS.

       (a) Delay in Implementation of Prospective Payment 
     System.--The Secretary of Health and Human Services may not 
     implement a revised prospective payment system for services 
     of ambulatory surgical facilities under section 1833(i) of 
     the Social Security Act (42 U.S.C. 1395l(i)) before January 
     1, 2002.
       (b) Extending Phase-In to 4 Years.--Section 226 of the BBRA 
     (113 Stat. 1501A-354) is amended by striking paragraphs (1) 
     and (2) and inserting the following:
       ``(1) in the first year of its implementation, only a 
     proportion (specified by the Secretary and not to exceed \1/
     4\) of the payment for such services shall be made in 
     accordance with such system and the remainder shall be made 
     in accordance with current regulations; and
       ``(2) in each of the following 2 years a proportion 
     (specified by the Secretary and not to exceed \1/2\, and \3/
     4\, respectively) of the payment for such services shall be 
     made under such system and the remainder shall be made in 
     accordance with current regulations.''.
       (c) Deadline for Use of 1999 or Later Cost Surveys.--
     Section 226 of BBRA (113 Stat. 1501A-354) is amended by 
     adding at the end the following:
     ``By not later than January 1, 2003, the Secretary shall 
     incorporate data from a 1999 medicare cost survey or a 
     subsequent cost survey for purposes of implementing or 
     revising such system.''.

     SEC. 425. FULL UPDATE FOR DURABLE MEDICAL EQUIPMENT.

       (a) In General.--Section 1834(a)(14) (42 U.S.C. 
     1395m(a)(14)) is amended--
       (1) by redesignating subparagraph (D) as subparagraph (F);
       (2) in subparagraph (C)--
       (A) by striking ``through 2002'' and inserting ``through 
     2000''; and
       (B) by striking ``and'' at the end; and
       (3) by inserting after subparagraph (C) the following new 
     subparagraphs:
       ``(D) for 2001, the percentage increase in the Consumer 
     Price Index for all urban consumers (U.S. city average) for 
     the 12-month period ending with June 2000;
       ``(E) for 2002, 0 percentage points; and''.
       (b) Conforming Amendments to BBRA.--Subsection (a) of 
     section 228 of BBRA (113 Stat. 1501A-356) is amended--
       (1) in the matter preceding paragraph (1), by striking 
     ``for such items'';
       (2) in paragraph (1), by inserting ``oxygen and oxygen 
     equipment for'' after ``(1)''; and
       (3) in paragraph (2), by inserting ``all such covered items 
     for'' after ``(2)''.
       (c) Effective Date.--The amendments made by subsection (b) 
     shall take effect as if included in the enactment of BBRA.

     SEC. 426. FULL UPDATE FOR ORTHOTICS AND PROSTHETICS.

       Section 1834(h)(4)(A) (42 U.S.C. 1395m(h)(4)(A)) is 
     amended--
       (1) by redesignating clause (vi) as clause (viii);
       (2) in clause (v)--
       (A) by striking ``through 2002'' and inserting ``through 
     2000''; and
       (B) by striking ``and'' at the end; and
       (3) by inserting after clause (v) the following new clause:
       ``(vi) for 2001, the percentage increase in the consumer 
     price index for all urban consumers (U.S. city average) for 
     the 12-month period ending with June 2000;
       ``(vii) for 2002, 1 percent; and''.

     SEC. 427. ESTABLISHMENT OF SPECIAL PAYMENT PROVISIONS AND 
                   REQUIREMENTS FOR PROSTHETICS AND CERTAIN CUSTOM 
                   FABRICATED ORTHOTIC ITEMS.

       (a) In General.--Section 1834(h)(1) (42 U.S.C. 1395m(h)(1)) 
     is amended by adding at the end the following:
       ``(F) Special payment rules for certain prosthetics and 
     custom fabricated orthotics.--
       ``(i) In general.--No payment shall be made under this 
     subsection for an item of custom fabricated orthotics 
     described in clause (ii) or for an item of prosthetics unless 
     such item is--

       ``(I) furnished by a qualified practitioner; and
       ``(II) fabricated by a qualified practitioner or a 
     qualified supplier at a facility that meets such criteria as 
     the Secretary determines appropriate.

[[Page H11039]]

       ``(ii) Description of custom fabricated item.--

       ``(I) In general.--An item described in this clause is an 
     item of custom fabricated orthotics that requires education, 
     training, and experience to custom fabricate and that is 
     included in a list established by the Secretary in subclause 
     (II). Such an item does not include shoes and shoe inserts.
       ``(II) List of items.--The Secretary, in consultation with 
     appropriate experts in orthotics (including national 
     organizations representing manufacturers of orthotics), shall 
     establish and update as appropriate a list of items to which 
     this subparagraph applies. No item may be included in such 
     list unless the item is individually fabricated for the 
     patient over a positive model of the patient.

       ``(iii) Qualified practitioner defined.--In this 
     subparagraph, the term `qualified practitioner' means a 
     physician or other individual who--

       ``(I) is a qualified physical therapist or a qualified 
     occupational therapist;
       ``(II) in the case of a State that provides for the 
     licensing of orthotics and prosthetics, is licensed in 
     orthotics or prosthetics by the State in which the item is 
     supplied; or
       ``(III) in the case of a State that does not provide for 
     the licensing of orthotics and prosthetics, is specifically 
     trained and educated to provide or manage the provision of 
     prosthetics and custom-designed or fabricated orthotics, and 
     is certified by the American Board for Certification in 
     Orthotics and Prosthetics, Inc. or by the Board for 
     Orthotist/Prosthetist Certification, or is credentialed and 
     approved by a program that the Secretary determines, in 
     consultation with appropriate experts in orthotics and 
     prosthetics, has training and education standards that are 
     necessary to provide such prosthetics and orthotics.

       ``(iv) Qualified supplier defined.--In this subparagraph, 
     the term `qualified supplier' means any entity that is 
     accredited by the American Board for Certification in 
     Orthotics and Prosthetics, Inc. or by the Board for 
     Orthotist/Prosthetist Certification, or accredited and 
     approved by a program that the Secretary determines has 
     accreditation and approval standards that are essentially 
     equivalent to those of such Board.''.
       (b) Effective Date.--Not later than 1 year after the date 
     of the enactment of this Act, the Secretary of Health and 
     Human Services shall promulgate revised regulations to carry 
     out the amendment made by subsection (a) using a negotiated 
     rulemaking process under subchapter III of chapter 5 of title 
     5, United States Code.
       (c) GAO Study and Report.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study on HCFA Ruling 96-1, issued on 
     September 1, 1996, with respect to distinguishing orthotics 
     from durable medical equipment under the medicare program 
     under title XVIII of the Social Security Act. The study shall 
     assess the following matters:
       (A) The compliance of the Secretary of Health and Human 
     Services with the Administrative Procedures Act (under 
     chapter 5 of title 5, United States Code) in making such 
     ruling.
       (B) The potential impact of such ruling on the health care 
     furnished to medicare beneficiaries under the medicare 
     program, especially those beneficiaries with degenerative 
     musculoskeletal conditions.
       (C) The potential for fraud and abuse under the medicare 
     program if payment were provided for orthotics used as a 
     component of durable medical equipment only when made under 
     the special payment provision for certain prosthetics and 
     custom fabricated orthotics under section 1834(h)(1)(F) of 
     the Social Security Act, as added by subsection (a) and 
     furnished by qualified practitioners under that section.
       (D) The impact on payments under titles XVIII and XIX of 
     the Social Security Act if such ruling were overturned.
       (2) Report.--Not later than 6 months after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under paragraph 
     (1).

     SEC. 428. REPLACEMENT OF PROSTHETIC DEVICES AND PARTS.

       (a) In General.--Section 1834(h)(1) (42 U.S.C. 
     1395m(h)(1)), as amended by section 427(a), is further 
     amended by adding at the end the following new subparagraph:
       ``(G) Replacement of prosthetic devices and parts.--
       ``(i) In general.--Payment shall be made for the 
     replacement of prosthetic devices which are artificial limbs, 
     or for the replacement of any part of such devices, without 
     regard to continuous use or useful lifetime restrictions if 
     an ordering physician determines that the provision of a 
     replacement device, or a replacement part of such a device, 
     is necessary because of any of the following:

       ``(I) A change in the physiological condition of the 
     patient.
       ``(II) An irreparable change in the condition of the 
     device, or in a part of the device.
       ``(III) The condition of the device, or the part of the 
     device, requires repairs and the cost of such repairs would 
     be more than 60 percent of the cost of a replacement device, 
     or, as the case may be, of the part being replaced.

       ``(ii) Confirmation may be required if replacement device 
     or part is less than 3 years old.--If a physician determines 
     that a replacement device, or a replacement part, is 
     necessary pursuant to clause (i)--

       ``(I) such determination shall be controlling; and
       ``(II) such replacement device or part shall be deemed to 
     be reasonable and necessary for purposes of section 
     1862(a)(1)(A);

     except that if the device, or part, being replaced is less 
     than 3 years old (calculated from the date on which the 
     beneficiary began to use the device or part), the Secretary 
     may also require confirmation of necessity of the replacement 
     device, or, as the case may be, the replacement part.''.
       (b) Preemption of Rule.--The provisions of section 
     1834(h)(1)(G) as added by subsection (a) shall supersede any  
     rule that as of the date of the enactment of this Act may 
     have applied a 5-year replacement rule with regard to 
     prosthetic devices.
       (c) Effective Date.--The amendment made by subsection (a) 
     shall apply to items replaced on or after April 1, 2001.

     SEC. 429. REVISED PART B PAYMENT FOR DRUGS AND BIOLOGICALS 
                   AND RELATED SERVICES.

       (a) Recommendations for Revised Payment Methodology for 
     Drugs and Biologicals.--
       (1) Study.--
       (A) In general.--The Comptroller General of the United 
     States shall conduct a study on the reimbursement for drugs 
     and biologicals under the current medicare payment 
     methodology (provided under section 1842(o) of the Social 
     Security Act (42 U.S.C. 1395u(o)) and for related services 
     under part B of title XVIII of such Act. In the study, the 
     Comptroller General shall--
       (i) identify the average prices at which such drugs and 
     biologicals are acquired by physicians and other suppliers;
       (ii) quantify the difference between such average prices 
     and the reimbursement amount under such section; and
       (iii) determine the extent to which (if any) payment under 
     such part is adequate to compensate physicians, providers of 
     services, or other suppliers of such drugs and biologicals 
     for costs incurred in the administration, handling, or 
     storage of such drugs or biologicals.
       (B) Consultation.--In conducting the study under 
     subparagraph (A), the Comptroller General shall consult with 
     physicians, providers of services, and suppliers of drugs and 
     biologicals under the medicare program under title XVIII of 
     such Act, as well as other organizations involved in the 
     distribution of such drugs and biologicals to such 
     physicians, providers of services, and suppliers.
       (2) Report.--Not later than 9 months after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress and to the Secretary of Health and Human Services 
     a report on the study conducted under this subsection, and 
     shall include in such report recommendations for revised 
     payment methodologies described in paragraph (3).
       (3) Recommendations for revised payment methodologies.--
       (A) In general.--The Comptroller General shall provide 
     specific recommendations for revised payment methodologies 
     for reimbursement for drugs and biologicals and for related 
     services under the medicare program. The Comptroller General 
     may include in the recommendations--
       (i) proposals to make adjustments under subsection (c) of 
     section 1848 of the Social Security Act (42 U.S.C. 1395w-4) 
     for the practice expense component of the physician fee 
     schedule under such section for the costs incurred in the 
     administration, handling, or storage of certain categories of 
     such drugs and biologicals, if appropriate; and
       (ii) proposals for new payments to providers of services or 
     suppliers for such costs, if appropriate.
       (B) Ensuring patient access to care.--In making 
     recommendations under this paragraph, the Comptroller General 
     shall ensure that any proposed revised payment methodology is 
     designed to ensure that medicare beneficiaries continue to 
     have appropriate access to health care services under the 
     medicare program.
       (C) Matters considered.--In making recommendations under 
     this paragraph, the Comptroller General shall consider--
       (i) the method and amount of reimbursement for similar 
     drugs and biologicals made by large group health plans;
       (ii) as a result of any revised payment methodology, the 
     potential for patients to receive inpatient or outpatient 
     hospital services in lieu of services in a physician's 
     office; and
       (iii) the effect of any revised payment methodology on the 
     delivery of drug therapies by hospital outpatient 
     departments.
       (D) Coordination with bbra study.--In making 
     recommendations under this paragraph, the Comptroller General 
     shall conclude and take into account the results of the study 
     provided for under section 213(a) of BBRA (113 Stat. 1501A-
     350).
       (b) Implementation of New Payment Methodology.--
       (1) In general.--Notwithstanding any other provision of 
     law, based on the recommendations contained in the report 
     under subsection (a), the Secretary of Health and Human 
     Services, subject to paragraph (2), shall revise the payment 
     methodology under section 1842(o) of the Social Security Act 
     (42 U.S.C. 1395u(o)) for drugs and biologicals furnished 
     under part B of the medicare program. To the extent the 
     Secretary determines appropriate, the Secretary may provide 
     for the adjustments to payments amounts referred to in 
     subsection (a)(3)(A)(i) or additional payments referred to in 
     subsection (a)(2)(A)(ii).
       (2) Limitation.--In revising the payment methodology under 
     paragraph (1), in no case may the estimated aggregate 
     payments for drugs and biologicals under the revised system 
     (including additional payments referred to in subsection 
     (a)(3)(A)(ii)) exceed the aggregate amount of payment for 
     such drugs and biologicals, as projected by the Secretary, 
     that would have been made under the payment methodology in 
     effect under such section 1842(o).
       (c) Temporary Injunction Against Reductions in Payment 
     Rates.--Notwithstanding any other provision of law, the 
     Administrator of the Health Care Financing Administration may 
     not directly or indirectly increase or decrease the rates of 
     reimbursement (in effect on September 1, 2000) for drugs and 
     biologicals under the current medicare payment methodology

[[Page H11040]]

     (provided under section 1842(o) of such Act (42 U.S.C. 
     1395u(o)) until such time as the Secretary has reviewed the 
     report submitted under subsection (a)(2).

     SEC. 430. CONTRAST ENHANCED DIAGNOSTIC PROCEDURES UNDER 
                   HOSPITAL PROSPECTIVE PAYMENT SYSTEM.

       (a) Separate Classification.--Section 1833(t)(2) (42 U.S.C. 
     1395l(t)(2)) is amended--
       (1) by striking ``and'' at the end of subparagraph (E);
       (2) by striking the period at the end of subparagraph (F) 
     and inserting ``; and''; and
       (3) by inserting after subparagraph (F) the following new 
     subparagraph:
       ``(G) the Secretary shall create additional groups of 
     covered OPD services that classify separately those 
     procedures that utilize contrast media from those that do 
     not.''.
       (b) Conforming Amendment.--Section 1861(t)(1) (42 U.S.C. 
     1395x(t)(1)) is amended by inserting ``(including contrast 
     agents)'' after ``only such drugs''.
       (c) Effective Date.--The amendments made by this section 
     apply to items and services furnished on or after January 1, 
     2001.

     SEC. 431. QUALIFICATIONS FOR COMMUNITY MENTAL HEALTH CENTERS.

       (a) Medicare Program.--Section 1861(ff)(3)(B) (42 U.S.C. 
     1395x(ff)(3)(B)) is amended by striking ``entity'' and all 
     that follows and inserting the following: ``entity that--
       ``(i)(I) provides the mental health services described in 
     section 1913(c)(1) of the Public Health Service Act; or
       ``(II) in the case of an entity operating in a State that 
     by law precludes the entity from providing itself the service 
     described in subparagraph (E) of such section, provides for 
     such service by contract with an approved organization or 
     entity (as determined by the Secretary);
       ``(ii) meets applicable licensing or certification 
     requirements for community mental health centers in the State 
     in which it is located; and
       ``(iii) meets such additional conditions as the Secretary 
     shall specify to ensure (I) the health and safety of 
     individuals being furnished such services, (II) the effective 
     and efficient furnishing of such services, and (III) the 
     compliance of such entity with the criteria described in 
     section 1931(c)(1) of the Public Health Service Act.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies with respect to community mental health centers with 
     respect to services furnished on or after the first day of 
     the third month beginning after the date of the enactment of 
     this Act.

     SEC. 432. MODIFICATION OF MEDICARE BILLING REQUIREMENTS FOR 
                   CERTAIN INDIAN PROVIDERS.

       (a) In General.--Section 1880(a) (42 U.S.C. 1395qq(a)) is 
     amended by adding at the end the following new sentence: ``A 
     hospital or a free-standing ambulatory care clinic (as 
     defined by the Secretary), whether operated by the Indian 
     Health Service or by an Indian tribe or tribal organization 
     (as those terms are defined in section 4 of the Indian Health 
     Care Improvement Act), shall be eligible for payments for 
     services for which payment is made pursuant to section 1848, 
     notwithstanding sections 1814(c) and 1835(d), if and for so 
     long as it meets all of the requirements which are applicable 
     generally to such payments, services, hospitals, and 
     clinics.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to services furnished on or after January 1, 
     2001.

     SEC. 433. GAO STUDY ON COVERAGE OF SURGICAL FIRST ASSISTING 
                   SERVICES OF CERTIFIED REGISTERED NURSE FIRST 
                   ASSISTANTS.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study on the effect on the medicare program 
     under title XVIII of the Social Security Act and on medicare 
     beneficiaries of coverage under the program of surgical first 
     assisting services of certified registered nurse first 
     assistants. The Comptroller General shall consider the 
     following when conducting the study:
       (1) Any impact on the quality of care furnished to medicare 
     beneficiaries by reason of such coverage.
       (2) Appropriate education and training requirements for 
     certified registered nurse first assistants who furnish such 
     first assisting services.
       (3) Appropriate rates of payment under the program to such 
     certified registered nurse first assistants for furnishing 
     such services, taking into account the costs of compensation, 
     overhead, and supervision attributable to certified 
     registered nurse first assistants.
       (b) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under subsection 
     (a).

     SEC. 434. MEDPAC STUDY AND REPORT ON MEDICARE REIMBURSEMENT 
                   FOR SERVICES PROVIDED BY CERTAIN PROVIDERS.

       (a) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study on the appropriateness of the current payment 
     rates under the medicare program under title XVIII of the 
     Social Security Act for services provided by a--
       (1) certified nurse-midwife (as defined in subsection 
     (gg)(2) of section 1861 of such Act (42 U.S.C. 1395x);
       (2) physician assistant (as defined in subsection 
     (aa)(5)(A) of such section);
       (3) nurse practitioner (as defined in such subsection); and
       (4) clinical nurse specialist (as defined in subsection 
     (aa)(5)(B) of such section).
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under subsection 
     (a), together with any recommendations for legislation that 
     the Commission determines to be appropriate as a result of 
     such study.

     SEC. 435. MEDPAC STUDY AND REPORT ON MEDICARE COVERAGE OF 
                   SERVICES PROVIDED BY CERTAIN NONPHYSICIAN 
                   PROVIDERS.

       (a) Study.--
       (1) In general.--The Medicare Payment Advisory Commission 
     shall conduct a study to determine the appropriateness of 
     providing coverage under the medicare program under title 
     XVIII of the Social Security Act for services provided by a--
       (A) surgical technologist;
       (B) marriage counselor;
       (C) marriage and family therapist;
       (D) pastoral care counselor; and
       (E) licensed professional counselor of mental health.
       (2) Costs to program.--The study shall consider the short-
     term and long-term benefits, and costs to the medicare 
     program, of providing the coverage described in paragraph 
     (1).
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under subsection 
     (a), together with any recommendations for legislation that 
     the Commission determines to be appropriate as a result of 
     such study.

     SEC. 436. GAO STUDY AND REPORT ON THE COSTS OF EMERGENCY AND 
                   MEDICAL TRANSPORTATION SERVICES.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study on the costs of providing emergency and 
     medical transportation services across the range of acuity 
     levels of conditions for which such transportation services 
     are provided.
       (b) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under subsection 
     (a), together with recommendations for any changes in 
     methodology or payment level necessary to fairly compensate 
     suppliers of emergency and medical transportation services 
     and to ensure the access of beneficiaries under the medicare 
     program under title XVIII of the Social Security Act.

     SEC. 437. GAO STUDIES AND REPORTS ON MEDICARE PAYMENTS.

       (a) GAO Study on HCFA Post-Payment Audit Process.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study on the post-payment audit process under 
     the medicare program under title XVIII of the Social Security 
     Act as such process applies to physicians, including the 
     proper level of resources that the Health Care Financing 
     Administration should devote to educating physicians 
     regarding--
       (A) coding and billing;
       (B) documentation requirements; and
       (C) the calculation of overpayments.
       (2) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under paragraph 
     (1) together with specific recommendations for changes or 
     improvements in the post-payment audit process described in 
     such paragraph.
       (b) GAO Study on Administration and Oversight.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study on the aggregate effects of regulatory, 
     audit, oversight, and paperwork burdens on physicians and 
     other health care providers participating in the medicare 
     program under title XVIII of the Social Security Act.
       (2) Report.--Not later than 18 months after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under paragraph 
     (1) together with recommendations regarding any area in 
     which--
       (A) a reduction in paperwork, an ease of administration, or 
     an appropriate change in oversight and review may be 
     accomplished; or
       (B) additional payments or education are needed to assist 
     physicians and other health care providers in understanding 
     and complying with any legal or regulatory requirements.

     SEC. 438. MEDPAC STUDY ON ACCESS TO OUTPATIENT PAIN 
                   MANAGEMENT SERVICES.

       (a) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study on the barriers to coverage and payment for 
     outpatient interventional pain medicine procedures under the 
     medicare program under title XVIII of the Social Security 
     Act. Such study shall examine--
       (1) the specific barriers imposed under the medicare 
     program on the provision of pain management procedures in 
     hospital outpatient departments, ambulatory surgery centers, 
     and physicians' offices; and
       (2) the consistency of medicare payment policies for pain 
     management procedures in those different settings.
       (b) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study.
             TITLE V--PROVISIONS RELATING TO PARTS A AND B
                    Subtitle A--Home Health Services

     SEC. 501. 1-YEAR ADDITIONAL DELAY IN APPLICATION OF 15 
                   PERCENT REDUCTION ON PAYMENT LIMITS FOR HOME 
                   HEALTH SERVICES.

       (a) In General.--Section 1895(b)(3)(A)(i) (42 U.S.C. 
     1395fff(b)(3)(A)(i)) is amended--
       (1) by redesignating subclause (II) as subclause (III);
       (2) in subclause (III), as redesignated, by striking 
     ``described in subclause (I)'' and inserting ``described in 
     subclause (II)''; and
       (3) by inserting after subclause (I) the following new 
     subclause:

[[Page H11041]]

       ``(II) For the 12-month period beginning after the period 
     described in subclause (I), such amount (or amounts) shall be 
     equal to the amount (or amounts) determined under subclause 
     (I), updated under subparagraph (B).''.

       (b) Change in Report.--Section 302(c) of BBRA (113 Stat. 
     1501A-360) is amended--
       (1) by striking ``Not later than'' and all that follows 
     through ``(42 U.S.C. 1395fff)'' and inserting ``Not later 
     than April 1, 2002''; and
       (2) by striking ``Secretary'' and inserting ``Comptroller 
     General of the United States''.
       (c) Case Mix Adjustment Corrections.--
       (1) In general.--Section 1895(b)(3)(B) (42 U.S.C. 
     1395fff(b)(3)(B)) is amended by adding at the end the 
     following new clause:
       ``(iv) Adjustment for case mix changes.--Insofar as the 
     Secretary determines that the adjustments under paragraph 
     (4)(A)(i) for a previous fiscal year (or estimates that such 
     adjustments for a future fiscal year) did (or are likely to) 
     result in a change in aggregate payments under this 
     subsection during the fiscal year that are a result of 
     changes in the coding or classification of different units of 
     services that do not reflect real changes in case mix, the 
     Secretary may adjust the standard prospective payment amount 
     (or amounts) under paragraph (3) for subsequent fiscal years 
     so as to eliminate the effect of such coding or 
     classification changes.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     applies to episodes concluding on or after October 1, 2001.

     SEC. 502. RESTORATION OF FULL HOME HEALTH MARKET BASKET 
                   UPDATE FOR HOME HEALTH SERVICES FOR FISCAL YEAR 
                   2001.

       (a) In General.--Section 1861(v)(1)(L)(x) (42 U.S.C. 
     1395x(v)(1)(L)(x)) is amended--
       (1) by striking ``2001,''; and
       (2) by adding at the end the following: ``With respect to 
     cost reporting periods beginning during fiscal year 2001, the 
     update to any limit under this subparagraph shall be the home 
     health market basket index.''.
       (b) Special Rule for Payment for Fiscal Year 2001 Based on 
     Adjusted Prospective Payment Amounts.--
       (1) In general.--Notwithstanding the amendments made by 
     subsection (a), for purposes of making payments under section 
     1895(b) of the Social Security Act (42 U.S.C. 1395fff(b)) for 
     home health services for fiscal year 2001, the Secretary of 
     Health and Human Services shall--
       (A) with respect to episodes and visits ending on or after 
     October 1, 2000, and before April 1, 2001, use the final 
     standardized and budget neutral prospective payment amounts 
     for 60 day episodes and standardized average per visit 
     amounts for fiscal year 2001 as published by the Secretary in 
     Federal Register of the July 3, 2000 (65 Federal Register 
     41128-41214); and
       (B) with respect to episodes and visits ending on or after 
     April 1, 2001, and before October 1, 2001, use such amounts 
     increased by 2.2 percent.
       (2) No effect on other payments or determinations.--The 
     Secretary shall not take the provisions of paragraph (1) into 
     account for purposes of payments, determinations, or budget 
     neutrality adjustments under section 1895 of the Social 
     Security Act.

     SEC. 503. TEMPORARY TWO-MONTH EXTENSION OF PERIODIC INTERIM 
                   PAYMENTS.

       (a) Temporary Extension.--Notwithstanding subsection (d) of 
     section 4603 of BBA (42 U.S.C. 1395fff note), as amended by 
     section 5101(c)(2) of the Tax and Trade Relief Extension Act 
     of 1998 (contained in division J of Public Law 105-277)), the 
     amendments made by subsection (b) of such section 4603 shall 
     not take effect until December 1, 2000, in the case of a home 
     health agency that was receiving periodic interim payments 
     under section 1815(e)(2) as of September 30, 2000.
       (b) Payment Rule.--The amount of such periodic interim 
     payment made to a home health agency by reason of subsection 
     (a) during each of November and December, 2000, shall be 
     equal to the amount of such payment made to the agency in 
     their last full monthly periodic interim payment. Such amount 
     of payment shall be included in the tentative settlement of 
     the last cost report for the home health agency under the 
     payment system in effect prior to the implementation of the 
     prospective payment system under section 1895(b) of the 
     Social Security Act (42 U.S.C. 1395fff(b)).

     SEC. 504. USE OF TELEHEALTH IN DELIVERY OF HOME HEALTH 
                   SERVICES.

       Section 1895 (42 U.S.C. 1395fff) is amended by adding at 
     the end the following new subsection:
       ``(e) Construction Related to Home Health Services.--
       ``(1) Telecommunications.--Nothing in this section shall be 
     construed as preventing a home health agency furnishing a 
     home health unit of service for which payment is made under 
     the prospective payment system established by this section 
     for such units of service from furnishing services via a 
     telecommunication system if such services--
       ``(A) do not substitute for in-person home health services 
     ordered as part of a plan of care certified by a physician 
     pursuant to section 1814(a)(2)(C) or section 1835(a)(2)(A); 
     and
       ``(B) are not considered a home health visit for purposes 
     of eligibility or payment under this title.
       ``(2) Physician certification.--Nothing in this section 
     shall be construed as waiving the requirement for a physician 
     certification under section 1814(a)(2)(C) or section 
     1835(a)(2)(A) of such Act (42 U.S.C. 1395f(a)(2)(C), 
     1395n(a)(2)(A)) for the payment for home health services, 
     whether or not furnished via a telecommunications system.''.

     SEC. 505. STUDY ON COSTS TO HOME HEALTH AGENCIES OF 
                   PURCHASING NONROUTINE MEDICAL SUPPLIES.

       (a) Study.--The Comptroller General of the United States 
     shall conduct a study on variations in prices paid by home 
     health agencies furnishing home health services under the 
     medicare program under title XVIII of the Social Security Act 
     in purchasing nonroutine medical supplies, including ostomy 
     supplies, and volumes if such supplies used, shall determine 
     the effect (if any) of variations on prices and volumes in 
     the provision of such services.
       (b) Report.--Not later than October 1, 2001, the 
     Comptroller General shall submit to Congress a report on the 
     study conducted under subsection (a), and shall include in 
     the report recommendations respecting whether payment for 
     nonroutine medical supplies furnished in connection with home 
     health services should be made separately from the 
     prospective payment system for such services.

     SEC. 506. TREATMENT OF BRANCH OFFICES; GAO STUDY ON 
                   SUPERVISION OF HOME HEALTH CARE PROVIDED IN 
                   ISOLATED RURAL AREAS.

       (a) Treatment of Branch Offices.--
       (1) In general.--Notwithstanding any other provision of 
     law, in determining for purposes of title XVIII of the Social 
     Security Act whether an office of a home health agency 
     constitutes a branch office or a separate home health agency, 
     neither the time nor distance between a parent office of the 
     home health agency and a branch office shall be the sole 
     determinant of a home health agency's branch office status.
       (2) Consideration of forms of technology in definition of 
     supervision.--The Secretary of Health and Human Services may 
     include forms of technology in determining what constitutes 
     ``supervision'' for purposes of determining a home heath 
     agency's branch office status under paragraph (1).
       (b) GAO Study.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study of the provision of adequate 
     supervision to maintain quality of home health services 
     delivered under the medicare program under title XVIII of the 
     Social Security Act in isolated rural areas. The study shall 
     evaluate the methods that home health agency branches and 
     subunits use to maintain adequate supervision in the delivery 
     of services to clients residing in those areas, how these 
     methods of supervision compare to requirements that subunits 
     independently meet medicare conditions of participation, and 
     the resources utilized by subunits to meet such conditions.
       (2) Report.--Not later than January 1, 2002, the 
     Comptroller General shall submit to Congress a report on the 
     study conducted under paragraph (1). The report shall include 
     recommendations on whether exceptions are needed for subunits 
     and branches of home health agencies under the medicare 
     program to maintain access to the home health benefit or 
     whether alternative policies should be developed to assure 
     adequate supervision and access and recommendations on 
     whether a national standard for supervision is appropriate.

     SEC. 507. CLARIFICATION OF THE HOMEBOUND DEFINITION UNDER THE 
                   MEDICARE HOME HEALTH BENEFIT.

       (a) Clarification.--
       (1) In general.--Sections 1814(a) and 1835(a) (42 U.S.C. 
     1395f(a) and 1395n(a)) are each amended--
       (A) in the last sentence, by striking ``, and that absences 
     of the individual from home are infrequent or of relatively 
     short duration, or are attributable to the need to receive 
     medical treatment''; and
       (B) by adding at the end the following new sentences: ``Any 
     absence of an individual from the home attributable to the 
     need to receive health care treatment, including regular 
     absences for the purpose of participating in therapeutic, 
     psychosocial, or medical treatment in an adult day-care 
     program that is licensed or certified by a State, or 
     accredited, to furnish adult day-care services in the State 
     shall not disqualify an individual from being considered to 
     be `confined to his home'. Any other absence of an individual 
     from the home shall not so disqualify an individual if the 
     absence is of infrequent or of relatively short duration. For 
     purposes of the preceding sentence, any absence for the 
     purpose of attending a religious service shall be deemed to 
     be an absence of infrequent or short duration.''.
       (2) Effective date.--The amendments made by paragraph (1) 
     shall apply to items and services provided on or after the 
     date of enactment of this Act.
       (b) Study.--
       (1) In general.--The Comptroller General of the United 
     States shall conduct an evaluation of the effect of the 
     amendment on the cost of and access to home health services 
     under the medicare program under title XVIII of the Social 
     Security Act.
       (2) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General shall submit 
     to Congress a report on the study conducted under paragraph 
     (1).
             Subtitle B--Direct Graduate Medical Education

     SEC. 511. INCREASE IN FLOOR FOR DIRECT GRADUATE MEDICAL 
                   EDUCATION PAYMENTS.

       Section 1886(h)(2)(D)(iii) (42 U.S.C. 1395ww(h)(2)(D)(iii)) 
     is amended--
       (1) in the heading, by striking ``in fiscal year 2001 at 70 
     percent of'' and inserting ``for''; and
       (2) by inserting after ``70 percent'' the following: ``, 
     and for the cost reporting period beginning during fiscal 
     year 2002 shall not be less than 85 percent,''.

     SEC. 512. CHANGE IN DISTRIBUTION FORMULA FOR MEDICARE+CHOICE-
                   RELATED NURSING AND ALLIED HEALTH EDUCATION 
                   COSTS.

       (a) In General.--Section 1886(l)(2)(C) (42 U.S.C. 
     1395ww(l)(2)(C)) is amended by striking all that follows 
     ``multiplied by'' and inserting the following: ``the ratio 
     of--

[[Page H11042]]

       ``(i) the product of (I) the Secretary's estimate of the 
     ratio of the amount of payments made under section 1861(v) to 
     the hospital for nursing and allied health education 
     activities for the hospital's cost reporting period ending in 
     the second preceding fiscal year, to the hospital's total 
     inpatient days for such period, and (II) the total number of 
     inpatient days (as established by the Secretary) for such 
     period which are attributable to services furnished to 
     individuals who are enrolled under a risk sharing contract 
     with an eligible organization under section 1876 and who are 
     entitled to benefits under part A or who are enrolled with a 
     Medicare+Choice organization under part C; to
       ``(ii) the sum of the products determined under clause (i) 
     for such cost reporting periods.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to portions of cost reporting periods occurring on or 
     after January 1, 2001.
      Subtitle C--Changes in Medicare Coverage and Appeals Process

     SEC. 521. REVISIONS TO MEDICARE APPEALS PROCESS.

       (a) Conduct of Reconsiderations of Determinations by 
     Independent Contractors.--Section 1869 (42 U.S.C. 1395ff) is 
     amended to read as follows:


                       ``determinations; appeals

       ``Sec. 1869. (a) Initial Determinations.--
       ``(1) Promulgations of regulations.--The Secretary shall 
     promulgate regulations and make initial determinations with 
     respect to benefits under part A or part B in accordance with 
     those regulations for the following:
       ``(A) The initial determination of whether an individual is 
     entitled to benefits under such parts.
       ``(B) The initial determination of the amount of benefits 
     available to the individual under such parts.
       ``(C) Any other initial determination with respect to a 
     claim for benefits under such parts, including an initial 
     determination by the Secretary that payment may not be made, 
     or may no longer be made, for an item or service under such 
     parts, an initial determination made by a utilization and 
     quality control peer review organization under section 
     1154(a)(2), and an initial determination made by an entity 
     pursuant to a contract (other than a contract under section 
     1852) with the Secretary to administer provisions of this 
     title or title XI.
       ``(2) Deadlines for making initial determinations.--
       ``(A) In general.--Subject to subparagraph (B), in 
     promulgating regulations under paragraph (1), initial 
     determinations shall be concluded by not later than the 45-
     day period beginning on the date the fiscal intermediary or 
     the carrier, as the case may be, receives a claim for 
     benefits from an individual as described in paragraph (1). 
     Notice of such determination shall be mailed to the 
     individual filing the claim before the conclusion of such 45-
     day period.
       ``(B) Clean claims.--Subparagraph (A) shall not apply with 
     respect to any claim that is subject to the requirements of 
     section 1816(c)(2) or section 1842(c)(2).
       ``(3) Redeterminations.--
       ``(A) In general.--In promulgating regulations under 
     paragraph (1) with respect to initial determinations, such 
     regulations shall provide for a fiscal intermediary or a 
     carrier to make a redetermination with respect to a claim for 
     benefits that is denied in whole or in part.
       ``(B) Limitations.--
       ``(i) Appeals rights.--No initial determination may be 
     reconsidered or appealed under subsection (b) unless the 
     fiscal intermediary or carrier has made a redetermination of 
     that initial determination under this paragraph.
       ``(ii) Decision maker.--No redetermination may be made by 
     any individual involved in the initial determination.
       ``(C) Deadlines.--
       ``(i) Filing for redetermination.--A redetermination under 
     subparagraph (A) shall be available only if notice is filed 
     with the Secretary to request the redetermination by not 
     later than the end of the 120-day period beginning on the 
     date the individual receives notice of the initial 
     determination under paragraph (2).
       ``(ii) Concluding redeterminations.--Redeterminations shall 
     be concluded by not later than the 30-day period beginning on 
     the date the fiscal intermediary or the carrier, as the case 
     may be, receives a request for a redetermination. Notice of 
     such determination shall be mailed to the individual filing 
     the claim before the conclusion of such 30-day period.
       ``(D) Construction.--For purposes of the succeeding 
     provisions of this section a redetermination under this 
     paragraph shall be considered to be part of the initial 
     determination.
       ``(b) Appeal Rights.--
       ``(1) In general.--
       ``(A) Reconsideration of initial determination.--Subject to 
     subparagraph (D), any individual dissatisfied with any 
     initial determination under subsection (a)(1) shall be 
     entitled to reconsideration of the determination, and, 
     subject to subparagraphs (D) and (E), a hearing thereon by 
     the Secretary to the same extent as is provided in section 
     205(b) and to judicial review of the Secretary's final 
     decision after such hearing as is provided in section 205(g). 
     For purposes of the preceding sentence, any reference to the 
     `Commissioner of Social Security' or the `Social Security 
     Administration' in subsection (g) or (l) of section 205 shall 
     be considered a reference to the `Secretary' or the 
     `Department of Health and Human Services', respectively.
       ``(B) Representation by provider or supplier.--
       ``(i) In general.--Sections 206(a), 1102, and 1871 shall 
     not be construed as authorizing the Secretary to prohibit an 
     individual from being represented under this section by a 
     person that furnishes or supplies the individual, directly or 
     indirectly, with services or items, solely on the basis that 
     the person furnishes or supplies the individual with such a 
     service or item.
       ``(ii) Mandatory waiver of right to payment from 
     beneficiary.--Any person that furnishes services or items to 
     an individual may not represent an individual under this 
     section with respect to the issue described in section 
     1879(a)(2) unless the person has waived any rights for 
     payment from the beneficiary with respect to the services or 
     items involved in the appeal.
       ``(iii) Prohibition on payment for representation.--If a 
     person furnishes services or items to an individual and 
     represents the individual under this section, the person may 
     not impose any financial liability on such individual in 
     connection with such representation.
       ``(iv) Requirements for representatives of a beneficiary.--
     The provisions of section 205(j) and section 206 (other than 
     subsection (a)(4) of such section) regarding representation 
     of claimants shall apply to representation of an individual 
     with respect to appeals under this section in the same manner 
     as they apply to representation of an individual under those 
     sections.
       ``(C) Succession of rights in cases of assignment.--The 
     right of an individual to an appeal under this section with 
     respect to an item or service may be assigned to the provider 
     of services or supplier of the item or service upon the 
     written consent of such individual using a standard form 
     established by the Secretary for such an assignment.
       ``(D) Time limits for filing appeals.--
       ``(i) Reconsiderations.--Reconsideration under subparagraph 
     (A) shall be available only if the individual described in 
     subparagraph (A) files notice with the Secretary to request 
     reconsideration by not later than the end of the 180-day 
     period beginning on the date the individual receives notice 
     of the redetermination under subsection (a)(3), or within 
     such additional time as the Secretary may allow.
       ``(ii) Hearings conducted by the secretary.--The Secretary 
     shall establish in regulations time limits for the filing of 
     a request for a  hearing by the Secretary in accordance with 
     provisions in sections 205 and 206.
       ``(E) Amounts in controversy.--
       ``(i) In general.--A hearing (by the Secretary) shall not 
     be available to an individual under this section if the 
     amount in controversy is less than $100, and judicial review 
     shall not be available to the individual if the amount in 
     controversy is less than $1,000.
       ``(ii) Aggregation of claims.--In determining the amount in 
     controversy, the Secretary, under regulations, shall allow 
     two or more appeals to be aggregated if the appeals involve--

       ``(I) the delivery of similar or related services to the 
     same individual by one or more providers of services or 
     suppliers, or
       ``(II) common issues of law and fact arising from services 
     furnished to two or more individuals by one or more providers 
     of services or suppliers.

       ``(F) Expedited proceedings.--
       ``(i) Expedited determination.--In the case of an 
     individual who has received notice by a provider of services 
     that the provider of services plans--

       ``(I) to terminate services provided to an individual and a 
     physician certifies that failure to continue the provision of 
     such services is likely to place the individual's health at 
     significant risk, or
       ``(II) to discharge the individual from the provider of 
     services,

     the individual may request, in writing or orally, an 
     expedited determination or an expedited reconsideration of an 
     initial determination made under subsection (a)(1), as the 
     case may be, and the Secretary shall provide such expedited 
     determination or expedited reconsideration.
       ``(ii) Expedited hearing.--In a hearing by the Secretary 
     under this section, in which the moving party alleges that no 
     material issues of fact are in dispute, the Secretary shall 
     make an expedited determination as to whether any such facts 
     are in dispute and, if not, shall render a decision 
     expeditiously.
       ``(G) Reopening and revision of determinations.--The 
     Secretary may reopen or revise any initial determination or 
     reconsidered determination described in this subsection under 
     guidelines established by the Secretary in regulations.
       ``(c) Conduct of Reconsiderations by Independent 
     Contractors.--
       ``(1) In general.--The Secretary shall enter into contracts 
     with qualified independent contractors to conduct 
     reconsiderations of initial determinations made under 
     subparagraphs (B) and (C) of subsection (a)(1). Contracts 
     shall be for an initial term of three years and shall be 
     renewable on a triennial basis thereafter.
       ``(2) Qualified independent contractor.--For purposes of 
     this subsection, the term `qualified independent contractor' 
     means an entity or organization that is independent of any 
     organization under contract with the Secretary that makes 
     initial determinations under subsection (a)(1), and that 
     meets the requirements established by the Secretary 
     consistent with paragraph (3).
       ``(3) Requirements.--Any qualified independent contractor 
     entering into a contract with the Secretary under this 
     subsection shall meet the all of the following requirements:
       ``(A) In general.--The qualified independent contractor 
     shall perform such duties and functions and assume such 
     responsibilities as may be required by the Secretary to carry 
     out the provisions of this subsection, and shall have 
     sufficient training and expertise in medical science and 
     legal matters to make reconsiderations under this subsection.
       ``(B) Reconsiderations.--

[[Page H11043]]

       ``(i) In general.--The qualified independent contractor 
     shall review initial determinations. In the case an initial 
     determination made with respect to whether an item or service 
     is reasonable and necessary for the diagnosis or treatment of 
     illness or injury (under section 1862(a)(1)(A)), such review 
     shall include consideration of the facts and circumstances of 
     the initial determination by a panel of physicians or other 
     appropriate health care professionals and any decisions with 
     respect to the reconsideration shall be based on applicable 
     information, including clinical experience and medical, 
     technical, and scientific evidence.
       ``(ii) Effect of national and local coverage 
     determinations.--

       ``(I) National coverage determinations.--If the Secretary 
     has made a national coverage determination pursuant to the 
     requirements established under the third sentence of section 
     1862(a), such determination shall be binding on the qualified 
     independent contractor in making a decision with respect to a 
     reconsideration under this section.
       ``(II) Local coverage determinations.--If the Secretary has 
     made a local coverage determination, such determination shall 
     not be binding on the qualified independent contractor in 
     making a decision with respect to a reconsideration under 
     this section. Notwithstanding the previous sentence, the 
     qualified independent contractor shall consider the local 
     coverage determination in making such decision.
       ``(III) Absence of national or local coverage 
     determination.--In the absence of such a national coverage 
     determination or local coverage determination, the qualified 
     independent contractor shall make a decision with respect to 
     the reconsideration based on applicable information, 
     including clinical experience and medical, technical, and 
     scientific evidence.

       ``(C) Deadlines for decisions.--
       ``(i) Reconsiderations.--Except as provided in clauses 
     (iii) and (iv), the qualified independent contractor shall 
     conduct and conclude a reconsideration under subparagraph 
     (B), and mail the notice of the decision with respect to the 
     reconsideration by not later than the end of the 30-day 
     period beginning on the date a request for reconsideration 
     has been timely filed.
       ``(ii) Consequences of failure to meet deadline.--In the 
     case of a failure by the qualified independent contractor to 
     mail the notice of the decision by the end of the period 
     described in clause (i) or to provide notice by the end of 
     the period described in clause (iii), as the case may be, the 
     party requesting the reconsideration or appeal may request a 
     hearing before the Secretary, notwithstanding any 
     requirements for a reconsidered determination for purposes of 
     the party's right to such hearing.
       ``(iii) Expedited reconsiderations.--The qualified 
     independent contractor shall perform an expedited 
     reconsideration under subsection (b)(1)(F) as follows:

       ``(I) Deadline for decision.--Notwithstanding section 
     216(j) and subject to clause (iv), not later than the end of 
     the 72-hour period beginning on the date the qualified 
     independent contractor has received a request for such 
     reconsideration and has received such medical or other 
     records needed for such reconsideration, the qualified 
     independent contractor shall provide notice (by telephone and 
     in writing) to the individual and the provider of services 
     and attending physician of the individual of the results of 
     the reconsideration. Such reconsideration shall be conducted 
     regardless of whether the provider of services or supplier 
     will charge the individual for continued services or whether 
     the individual will be liable for payment for such continued 
     services.
       ``(II) Consultation with beneficiary.--In such 
     reconsideration, the qualified independent contractor shall 
     solicit the views of the individual involved.
       ``(III) Special rule for hospital discharges.--A 
     reconsideration of a discharge from a hospital shall be 
     conducted under this clause in accordance with the provisions 
     of paragraphs (2), (3), and (4) of section 1154(e) as in 
     effect on the date that precedes the date of the enactment of 
     this subparagraph.

       ``(iv) Extension.--An individual requesting a 
     reconsideration under this subparagraph may be granted such 
     additional time as the individual specifies (not to exceed 14 
     days) for the qualified independent contractor to conclude 
     the reconsideration. The individual may request such 
     additional time in orally or in writing.
       ``(D) Limitation on individual reviewing determinations.--
       ``(i) Physicians and health care professional.--No 
     physician or health care professional under the employ of a 
     qualified independent contractor may review--

       ``(I) determinations regarding health care services 
     furnished to a patient if the physician or health care 
     professional was directly responsible for furnishing such 
     services; or
       ``(II) determinations regarding health care services 
     provided in or by an institution, organization, or agency, if 
     the physician or any member of the family of the physician or 
     health care professional has, directly or indirectly, a 
     significant financial interest in such institution, 
     organization, or agency.

       ``(ii) Family described.--For purposes of this paragraph, 
     the family of a physician or health care professional 
     includes the spouse (other than a spouse who is legally 
     separated from the physician or health care professional 
     under a decree of divorce or separate maintenance), children 
     (including stepchildren and legally adopted children), 
     grandchildren, parents, and grandparents of the physician or 
     health care professional.
       ``(E) Explanation of decision.--Any decision with respect 
     to a reconsideration of a qualified independent contractor 
     shall be in writing, and shall include a detailed explanation 
     of the decision as well as a discussion of the pertinent 
     facts and applicable regulations applied in making such 
     decision, and in the case of a determination of whether an 
     item or service is reasonable and necessary for the diagnosis 
     or treatment of illness or injury (under section 
     1862(a)(1)(A)) an explanation of the medical and scientific 
     rational for the decision.
       ``(F) Notice requirements.--Whenever a qualified 
     independent contractor makes a decision with respect to a 
     reconsideration under this subsection, the qualified 
     independent contractor shall promptly notify the entity 
     responsible for the payment of claims under part A or part B 
     of such decision.
       ``(G) Dissemination of decisions on reconsiderations.--Each 
     qualified independent contractor shall make available all 
     decisions with respect to reconsiderations of such qualified 
     independent contractors to fiscal intermediaries (under 
     section 1816), carriers (under section 1842), peer review 
     organizations (under part B of title XI), Medicare+Choice 
     organizations offering Medicare+Choice plans under part C, 
     other entities under contract with the Secretary to make 
     initial determinations under part A or part B or title XI, 
     and to the public. The Secretary shall establish a 
     methodology under which qualified independent contractors 
     shall carry out this subparagraph.
       ``(H) Ensuring consistency in decisions.--Each qualified 
     independent contractor shall monitor its decisions with 
     respect to reconsiderations to ensure the consistency of such 
     decisions with respect to requests for reconsideration of 
     similar or related matters.
       ``(I) Data collection.--
       ``(i) In general.--Consistent with the requirements of 
     clause (ii), a qualified independent contractor shall collect 
     such information relevant to its functions, and keep and 
     maintain such records in such form and manner as the 
     Secretary may require to carry out the purposes of this 
     section and shall permit access to and use of any such 
     information and records as the Secretary may require for such 
     purposes.
       ``(ii) Type of data collected.--Each qualified independent 
     contractor shall keep accurate records of each decision made, 
     consistent with standards established by the Secretary for 
     such purpose. Such records shall be maintained in an 
     electronic database in a manner that provides for 
     identification of the following:

       ``(I) Specific claims that give rise to appeals.
       ``(II) Situations suggesting the need for increased 
     education for providers of services, physicians, or 
     suppliers.
       ``(III) Situations suggesting the need for changes in 
     national or local coverage policy.
       ``(IV) Situations suggesting the need for changes in local 
     medical review policies.

       ``(iii) Annual reporting.--Each qualified independent 
     contractor shall submit annually to the Secretary (or 
     otherwise as the Secretary may request) records maintained 
     under this paragraph for the previous year.
       ``(J) Hearings by the secretary.--The qualified independent 
     contractor shall (i) prepare such information as is required 
     for an appeal of a decision of the contractor with respect to 
     a reconsideration to the Secretary for a hearing, including 
     as necessary, explanations of issues involved in the decision 
     and relevant policies, and (ii) participate in such hearings 
     as required by the Secretary.
       ``(4) Number of qualified independent contractors.--The 
     Secretary shall enter into contracts with not fewer than 12 
     qualified independent contractors under this subsection.
       ``(5) Limitation on qualified independent contractor 
     liability.--No qualified independent contractor having a 
     contract with the Secretary under this subsection and no 
     person who is employed by, or who has a fiduciary 
     relationship with, any such qualified independent contractor 
     or who furnishes professional services to such qualified 
     independent contractor, shall be held by reason of the 
     performance of any duty, function, or activity required or 
     authorized pursuant to this subsection or to a valid contract 
     entered into under this subsection, to have violated any 
     criminal law, or to be civilly liable under any law of the 
     United States or of any State (or political subdivision 
     thereof) provided due care was exercised in the performance 
     of such duty, function, or activity.
       ``(d) Deadlines for Hearings by the Secretary.--
       ``(1) Hearing by administrative law judge.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     an administrative law judge shall conduct and conclude a 
     hearing on a decision of a qualified independent contractor 
     under subsection (c) and render a decision on such hearing by 
     not later than the end of the 90-day period beginning on the 
     date a request for hearing has been timely filed.
       ``(B) Waiver of deadline by party seeking hearing.--The 90-
     day period under subparagraph (A) shall not apply in the case 
     of a motion or stipulation by the party requesting the 
     hearing to waive such period.
       ``(2) Departmental appeals board review.--
       ``(A) In general.--The Departmental Appeals Board of the 
     Department of Health and Human Services shall conduct and 
     conclude a review of the decision on a hearing described in 
     paragraph (1) and make a decision or remand the case to the 
     administrative law judge for reconsideration by not later 
     than the end of the 90-day period beginning on the date a 
     request for review has been timely filed.
       ``(B) DAB hearing procedure.--In reviewing a decision on a 
     hearing under this paragraph, the Departmental Appeals Board 
     shall review the case de novo.
       ``(3) Consequences of failure to meet deadlines.--
       ``(A) Hearing by administrative law judge.--In the case of 
     a failure by an administrative law judge to render a decision 
     by the end of the period described in paragraph (1), the

[[Page H11044]]

     party requesting the hearing may request a review by the 
     Departmental Appeals Board of the Department of Health and 
     Human Services, notwithstanding any requirements for a 
     hearing for purposes of the party's right to such a review.
       ``(B) Departmental appeals board review.--In the case of a 
     failure by the Departmental Appeals Board to render a 
     decision by the end of the period described in paragraph (2), 
     the party requesting the hearing may seek judicial review, 
     notwithstanding any requirements for a hearing for purposes 
     of the party's right to such judicial review.
       ``(e) Administrative Provisions.--
       ``(1) Limitation on review of certain regulations.--A 
     regulation or instruction that relates to a method for 
     determining the amount of payment under part B and that was 
     initially issued before January 1, 1981, shall not be subject 
     to judicial review.
       ``(2) Outreach.--The Secretary shall perform such outreach 
     activities as are necessary to inform individuals entitled to 
     benefits under this title and providers of services and 
     suppliers with respect to their rights of, and the process 
     for, appeals made under this section. The Secretary shall use 
     the toll-free telephone number maintained by the Secretary 
     under section 1804(b) to provide information regarding appeal 
     rights and respond to inquiries regarding the status of 
     appeals.
       ``(3) Continuing education requirement for qualified 
     independent contractors and administrative law judges.--The 
     Secretary shall provide to each qualified independent 
     contractor, and, in consultation with the Commissioner of 
     Social Security, to administrative law judges that decide 
     appeals of reconsiderations of initial determinations or 
     other decisions or determinations under this section, such 
     continuing education with respect to coverage of items and 
     services under this title or policies of the Secretary with 
     respect to part B of title XI as is necessary for such 
     qualified independent contractors and administrative law 
     judges to make informed decisions with respect to appeals.
       ``(4) Reports.--
       ``(A) Annual report to congress.--The Secretary shall 
     submit to Congress an annual report describing the number of 
     appeals for the previous year, identifying issues that 
     require administrative or legislative actions, and including 
     any recommendations of the Secretary with respect to such 
     actions. The Secretary shall include in such report an 
     analysis of determinations by qualified independent 
     contractors with respect to inconsistent decisions and an 
     analysis of the causes of any such inconsistencies.
       ``(B) Survey.--Not less frequently than every 5 years, the 
     Secretary shall conduct a survey of a valid sample of 
     individuals entitled to benefits under this title who have 
     filed appeals of determinations under this section, providers 
     of services, and suppliers to determine the satisfaction of 
     such individuals or entities with the process for appeals of 
     determinations provided for under this section and education 
     and training provided by the Secretary with respect to that 
     process. The Secretary shall submit to Congress a report 
     describing the results of the survey, and shall include any 
     recommendations for administrative or legislative actions 
     that the Secretary determines appropriate.''.
       (b) Applicability of Requirements and Limitations on 
     Liability of Qualified Independent Contractors to 
     Medicare+Choice Independent Appeals Contractors.--Section 
     1852(g)(4) (42 U.S.C. 1395w-22(g)(4)) is amended by adding at 
     the end the following: ``The provisions of section 1869(c)(5) 
     shall apply to independent outside entities under contract 
     with the Secretary under this paragraph.''.
       (c) Conforming Amendment.--Section 1154(e) (42 U.S.C. 
     1320c-3(e)) is amended by striking paragraphs (2), (3), and 
     (4).
       (d) Effective Date.--The amendments made by this section 
     apply with respect to initial determinations made on or after 
     October 1, 2002.

     SEC. 522. REVISIONS TO MEDICARE COVERAGE PROCESS.

       (a) Review of Determinations.--Section 1869 (42 U.S.C. 
     1395ff), as amended by section 521, is further amended by 
     adding at the end the following new subsection:
       ``(f) Review of Coverage Determinations.--
       ``(1) National coverage determinations.--
       ``(A) In general.--Review of any national coverage 
     determination shall be subject to the following limitations:
       ``(i) Such a determination shall not be reviewed by any 
     administrative law judge.
       ``(ii) Such a determination shall not be held unlawful or 
     set aside on the ground that a requirement of section 553 of 
     title 5, United States Code, or section 1871(b) of this 
     title, relating to publication in the Federal Register or 
     opportunity for public comment, was not satisfied.
       ``(iii) Upon the filing of a complaint by an aggrieved 
     party, such a determination shall be reviewed by the 
     Departmental Appeals Board of the Department of Health and 
     Human Services. In conducting such a review, the Departmental 
     Appeals Board shall review the record and shall permit 
     discovery and the taking of evidence to evaluate the 
     reasonableness of the determination, if the Board determines 
     that the record is incomplete or lacks adequate information 
     to support the validity of the determination. In reviewing 
     such a determination, the Departmental Appeals Board shall 
     defer only to the reasonable findings of fact, reasonable 
     interpretations of law, and reasonable applications of fact 
     to law by the Secretary.
       ``(iv) A decision of the Departmental Appeals Board 
     constitutes a final agency action and is subject to judicial 
     review.
       ``(B) Definition of national coverage determination.--For 
     purposes of this section, the term `national coverage 
     determination' means a determination by the Secretary with 
     respect to whether or not a particular item or service is 
     covered nationally under this title, but does not include a 
     determination of what code, if any, is assigned to a 
     particular item or service covered under this title or a 
     determination with respect to the amount of payment made for 
     a particular item or service so covered.
       ``(2) Local coverage determination.--
       ``(A) In general.--Review of any local coverage 
     determination shall be subject to the following limitations:
       ``(i) Upon the filing of a complaint by an aggrieved party, 
     such a determination shall be reviewed by an administrative 
     law judge of the Social Security Administration. The 
     administrative law judge shall review the record and shall 
     permit discovery and the taking of evidence to evaluate the 
     reasonableness of the determination, if the administrative 
     law judge determines that the record is incomplete or lacks 
     adequate information to support the validity of the 
     determination. In reviewing such a determination, the 
     administrative law judge shall defer only to the reasonable 
     findings of fact, reasonable interpretations of law, and 
     reasonable applications of fact to law by the Secretary.
       ``(ii) Upon the filing of a complaint by an aggrieved 
     party, a decision of an administrative law judge under clause 
     (i) shall be reviewed by the Departmental Appeals Board of 
     the Department of Health and Human Services.
       ``(iii) A decision of the Departmental Appeals Board 
     constitutes a final agency action and is subject to judicial 
     review.
       ``(B) Definition of local coverage determination.--For 
     purposes of this section, the term `local coverage 
     determination' means a determination by a fiscal intermediary 
     or a carrier under part A or part B, as applicable, 
     respecting whether or not a particular item or service is 
     covered on an intermediary- or carrier-wide basis under such 
     parts, in accordance with section 1862(a)(1)(A).
       ``(3) No material issues of fact in dispute.--In the case 
     of a determination that may otherwise be subject to review 
     under paragraph (1)(A)(iii) or paragraph (2)(A)(i), where the 
     moving party alleges that--
       ``(A) there are no material issues of fact in dispute, and
       ``(B) the only issue of law is the constitutionality of a 
     provision of this title, or that a regulation, determination, 
     or ruling by the Secretary is invalid,

     the moving party may seek review by a court of competent 
     jurisdiction without filing a complaint under such paragraph 
     and without otherwise exhausting other administrative 
     remedies.
       ``(4) Pending national coverage determinations.--
       ``(A) In general.--In the event the Secretary has not 
     issued a national coverage or noncoverage determination with 
     respect to a particular type or class of items or services, 
     an aggrieved person (as described in paragraph (5)) may 
     submit to the Secretary a request to make such a 
     determination with respect to such items or services. By not 
     later than the end of the 90-day period beginning on the date 
     the Secretary receives such a request (notwithstanding the 
     receipt by the Secretary of new evidence (if any) during such 
     90-day period), the Secretary shall take one of the following 
     actions:
       ``(i) Issue a national coverage determination, with or 
     without limitations.
       ``(ii) Issue a national noncoverage determination.
       ``(iii) Issue a determination that no national coverage or 
     noncoverage determination is appropriate as of the end of 
     such 90-day period with respect to national coverage of such 
     items or services.
       ``(iv) Issue a notice that states that the Secretary has 
     not completed a review of the request for a national coverage 
     determination and that includes an identification of the 
     remaining steps in the Secretary's review process and a 
     deadline by which the Secretary will complete the review and 
     take an action described in subclause (I), (II), or (III).
       ``(B) In the case of an action described in clause (i)(IV), 
     if the Secretary fails to take an action referred to in such 
     clause by the deadline specified by the Secretary under such 
     clause, then the Secretary is deemed to have taken an action 
     described in clause (i)(III) as of the deadline.
       ``(C) When issuing a determination under clause (i), the 
     Secretary shall include an explanation of the basis for the 
     determination. An action taken under clause (i) (other than 
     subclause (IV)) is deemed to be a national coverage 
     determination for purposes of review under subparagraph (A).
       ``(5) Standing.--An action under this subsection seeking 
     review of a national coverage determination or local coverage 
     determination may be initiated only by individuals entitled 
     to benefits under part A, or enrolled under part B, or both, 
     who are in need of the items or services that are the subject 
     of the coverage determination.
       ``(6) Publication on the internet of decisions of hearings 
     of the secretary.--Each decision of a hearing by the 
     Secretary with respect to a national coverage determination 
     shall be made public, and the Secretary shall publish each 
     decision on the Medicare Internet  site of the Department of 
     Health and Human Services. The Secretary shall remove from 
     such decision any information that would identify any 
     individual, provider of services, or supplier.
       ``(7) Annual report on national coverage determinations.--
       ``(A) In general.--Not later than December 1 of each year, 
     beginning in 2001, the Secretary shall submit to Congress a 
     report that sets forth a detailed compilation of the actual 
     time periods that were necessary to complete and fully 
     implement national coverage determinations that were made in 
     the previous fiscal year for items, services, or medical 
     devices not previously covered as a benefit under this title, 
     including, with

[[Page H11045]]

     respect to each new item, service, or medical device, a 
     statement of the time taken by the Secretary to make and 
     implement the necessary coverage, coding, and payment 
     determinations, including the time taken to complete each 
     significant step in the process of making and implementing 
     such determinations.
       ``(B) Publication of reports on the internet.--The 
     Secretary shall publish each report submitted under clause 
     (i) on the medicare Internet site of the Department of Health 
     and Human Services.
       ``(8) Construction.--Nothing in this subsection shall be 
     construed as permitting administrative or judicial review 
     pursuant to this section insofar as such review is explicitly 
     prohibited or restricted under another provision of law.''.
       (b) Establishment of a Process for Coverage 
     Determinations.--Section 1862(a) (42 U.S.C. 1395y(a)) is 
     amended by adding at the end the following new sentence: ``In 
     making a national coverage determination (as defined in 
     paragraph (1)(B) of section 1869(f)) the Secretary shall 
     ensure that the public is afforded notice and opportunity to 
     comment prior to implementation by the Secretary of the 
     determination; meetings of advisory committees established 
     under section 1114(f) with respect to the determination are 
     made on the record; in making the determination, the 
     Secretary has considered applicable information (including 
     clinical experience and medical, technical, and scientific 
     evidence) with respect to the subject matter of the 
     determination; and in the determination, provide a clear 
     statement of the basis for the determination (including 
     responses to comments received from the public), the 
     assumptions underlying that basis, and make available to the 
     public the data (other than proprietary data) considered in 
     making the determination.''.
       (c) Improvements to the Medicare Advisory Committee 
     Process.--Section 1114 (42 U.S.C. 1314) is amended by adding 
     at the end the following new subsection:
       ``(i)(1) Any advisory committee appointed under subsection 
     (f) to advise the Secretary on matters relating to the 
     interpretation, application, or implementation of section 
     1862(a)(1) shall assure the full participation of a nonvoting 
     member in the deliberations of the advisory committee, and 
     shall provide such nonvoting member access to all information 
     and data made available to voting members of the advisory 
     committee, other than information that--
       ``(A) is exempt from disclosure pursuant to subsection (a) 
     of section 552 of title 5, United States Code, by reason of 
     subsection (b)(4) of such section (relating to trade 
     secrets); or
       ``(B) the Secretary determines would present a conflict of 
     interest relating to such nonvoting member.
       ``(2) If an advisory committee described in paragraph (1) 
     organizes into panels of experts according to types of items 
     or services considered by the advisory committee, any such 
     panel of experts may report any recommendation with respect 
     to such items or services directly to the Secretary without 
     the prior approval of the advisory committee or an executive 
     committee thereof.''.
       (d) Effective Date.--The amendments made by this section 
     apply with respect to--
       (1) a review of any national or local coverage 
     determination filed,
       (2) a request to make such a determination made,
       (3) a national coverage determination made,
     on or after October 1, 2001.
            Subtitle D--Improving Access to New Technologies

     SEC. 531. REIMBURSEMENT IMPROVEMENTS FOR NEW CLINICAL 
                   LABORATORY TESTS AND DURABLE MEDICAL EQUIPMENT.

       (a) Payment Rule for New Laboratory Tests.--Section 
     1833(h)(4)(B)(viii) (42 U.S.C. 1395l(h)(4)(B)(viii)) is 
     amended by inserting before the period at the end the 
     following: ``(or 100 percent of such median in the case of a 
     clinical diagnostic laboratory test performed on or after 
     January 1, 2001, that the Secretary determines is a new test 
     for which no limitation amount has previously been 
     established under this subparagraph)''.
       (b) Establishment of Coding and Payment Procedures for New 
     Clinical Diagnostic Laboratory Tests and Other Items on a Fee 
     Schedule.--Not later than 1 year after the date of the 
     enactment of this Act, the Secretary of Health and Human 
     Services shall establish procedures for coding and payment 
     determinations for the categories of new clinical diagnostic 
     laboratory tests and new durable medical equipment under part 
     B of the title XVIII of the Social Security Act that permit 
     public consultation in a manner consistent with the 
     procedures established for implementing coding modifications 
     for ICD-9-CM.
       (c) Report on Procedures Used for Advanced, Improved 
     Technologies.--Not later than 1 year after the date of the 
     enactment of this Act, the Secretary of Health and Human 
     Services shall submit to Congress a report that identifies 
     the specific procedures used by the Secretary under part B of 
     title XVIII of the Social Security Act to adjust payments for 
     clinical diagnostic laboratory tests and durable medical 
     equipment which are classified to existing codes where, 
     because of an advance in technology with respect to the test 
     or equipment, there has been a significant increase or 
     decrease in the resources used in the test or in the 
     manufacture of the equipment, and there has been a 
     significant improvement in the performance of the test or 
     equipment. The report shall include such recommendations for 
     changes in law as may be necessary to assure fair and 
     appropriate payment levels under such part for such improved 
     tests and equipment as reflects increased costs necessary to 
     produce improved results.

     SEC. 532. RETENTION OF HCPCS LEVEL III CODES.

       (a) In General.--The Secretary of Health and Human Services 
     shall maintain and continue the use of level III codes of the 
     HCPCS coding system (as such system was in effect on August 
     16, 2000) through December 31, 2003, and shall make such 
     codes available to the public.
       (b) Definition.--For purposes of this section, the term 
     ``HCPCS Level III codes'' means the alphanumeric codes for 
     local use under the Health Care Financing Administration 
     Common Procedure Coding System (HCPCS).

     SEC. 533. RECOGNITION OF NEW MEDICAL TECHNOLOGIES UNDER 
                   INPATIENT HOSPITAL PPS.

       (a) Expediting Recognition of New Technologies Into 
     Inpatient PPS Coding System.--
       (1) Report.--Not later than April 1, 2001, the Secretary of 
     Health and Human Services shall submit to Congress a report 
     on methods of expeditiously incorporating new medical 
     services and technologies into the clinical coding system 
     used with respect to payment for inpatient hospital services 
     furnished under the medicare program under title XVIII of the 
     Social Security Act, together with a detailed description of 
     the Secretary's preferred methods to achieve this purpose.
       (2) Implementation.--Not later than October 1, 2001, the 
     Secretary shall implement the preferred methods described in 
     the report transmitted pursuant to paragraph (1).
       (b) Ensuring Appropriate Payments for Hospitals 
     Incorporating New Medical Services and Technologies.--
       (1) Establishment of mechanism.--Section 1886(d)(5) (42 
     U.S.C. 1395ww(d)(5)) is amended by adding at the end the 
     following new subparagraphs:
       ``(K)(i) Effective for discharges beginning on or after 
     October 1, 2001, the Secretary shall establish a mechanism to 
     recognize the costs of new medical services and technologies 
     under the payment system established under this subsection. 
     Such mechanism shall be established after notice and 
     opportunity for public comment (in the publications required 
     by subsection (e)(5) for a fiscal year or otherwise).
       ``(ii) The mechanism established pursuant to clause (i) 
     shall--
       ``(I) apply to a new medical service or technology if, 
     based on the estimated costs incurred with respect to 
     discharges involving such service or technology, the DRG 
     prospective payment rate otherwise applicable to such 
     discharges under this subsection is inadequate;
       ``(II) provide for the collection of data with respect to 
     the costs of a new medical service or technology described in 
     subclause (I) for a period of not less than two years and not 
     more than three years beginning on the date on which an 
     inpatient hospital code is issued with respect to the service 
     or technology;
       ``(III) subject to paragraph (4)(C)(iii), provide for 
     additional payment to be made under this subsection with 
     respect to discharges involving a new medical service or 
     technology described in subclause (I) that occur during the 
     period described in subclause (II) in an amount that 
     adequately reflects the estimated average cost of such 
     service or technology; and
       ``(IV) provide that discharges involving such a service or 
     technology that occur after the close of the period described 
     in subclause (II) will be classified within a new or existing 
     diagnosis-related group with a weighting factor  under 
     paragraph (4)(B) that is derived from cost data collected 
     with respect to discharges occurring during such period.
       ``(iii) For purposes of clause (ii)(II), the term 
     `inpatient hospital code' means any code that is used with 
     respect to inpatient hospital services for which payment may 
     be made under this subsection and includes an alphanumeric 
     code issued under the International Classification of 
     Diseases, 9th Revision, Clinical Modification (`ICD-9-CM') 
     and its subsequent revisions.
       ``(iv) For purposes of clause (ii)(III), the term 
     `additional payment' means, with respect to a discharge for a 
     new medical service or technology described in clause 
     (ii)(I), an amount that exceeds the prospective payment rate 
     otherwise applicable under this subsection to discharges 
     involving such service or technology that would be made but 
     for this subparagraph.
       ``(v) The requirement under clause (ii)(III) for an 
     additional payment may be satisfied by means of a new-
     technology group (described in subparagraph (L)), an add-on 
     payment, a payment adjustment, or any other similar mechanism 
     for increasing the amount otherwise payable with respect to a 
     discharge under this subsection. The Secretary may not 
     establish a separate fee schedule for such additional payment 
     for such services and technologies, by utilizing a 
     methodology established under subsection (a) or (h) of 
     section 1834 to determine the amount of such additional 
     payment, or by other similar mechanisms or methodologies.
       ``(vi) For purposes of this subparagraph and subparagraph 
     (L), a medical service or technology will be considered a 
     `new medical service or technology' if the service or 
     technology meets criteria established by the Secretary after 
     notice and an opportunity for public comment.
       ``(L)(i) In establishing the mechanism under subparagraph 
     (K), the Secretary may establish new-technology groups into 
     which a new medical service or technology will be classified 
     if, based on the estimated average costs incurred with 
     respect to discharges involving such service or technology, 
     the DRG prospective payment rate otherwise applicable to such 
     discharges under this subsection is inadequate.
       ``(ii) Such groups--
       ``(I) shall not be based on the costs associated with a 
     specific new medical service or technology; but
       ``(II) shall, in combination with the applicable 
     standardized amounts and the weighting factors

[[Page H11046]]

     assigned to such groups under paragraph (4)(B), reflect such 
     cost cohorts as the Secretary determines are appropriate for 
     all new medical services and technologies that are likely to 
     be provided as inpatient hospital services in a fiscal year.
       ``(iii) The methodology for classifying specific hospital 
     discharges within a diagnosis-related group under paragraph 
     (4)(A) or a new-technology group shall provide that a 
     specific hospital discharge may not be classified within both 
     a diagnosis-related group and a new-technology group.''.
       (2) Prior consultation.--The Secretary of Health and Human 
     Services shall consult with groups representing hospitals, 
     physicians, and manufacturers of new medical technologies 
     before publishing the notice of proposed rulemaking required 
     by section 1886(d)(5)(K)(i) of the Social Security Act (as 
     added by paragraph (1)).
       (3) Conforming amendment.--Section 1886(d)(4)(C)(i) (42 
     U.S.C. 1395ww(d)(4)(C)(i)) is amended by striking 
     ``technology,'' and inserting ``technology (including a new 
     medical service or technology under paragraph (5)(K)),''.
                      Subtitle E--Other Provisions

     SEC. 541. INCREASE IN REIMBURSEMENT FOR BAD DEBT.

       Section 1861(v)(1)(T) (42 U.S.C. 1395x(v)(1)(T)) is 
     amended--
       (1) in clause (ii), by striking ``and'' at the end;
       (2) in clause (iii)--
       (A) by striking ``during a subsequent fiscal year'' and 
     inserting ``during fiscal year 2000''; and
       (B) by striking the period at the end and inserting ``, 
     and''; and
       (3) by adding at the end the following new clause:
       ``(iv) for cost reporting periods beginning during a 
     subsequent fiscal year, by 30 percent of such amount 
     otherwise allowable.''.

     SEC. 542. TREATMENT OF CERTAIN PHYSICIAN PATHOLOGY SERVICES 
                   UNDER MEDICARE.

       (a) In General.--When an independent laboratory furnishes 
     the technical component of a physician pathology service to a 
     fee-for-service medicare beneficiary who is an inpatient or 
     outpatient of a covered hospital, the Secretary of Health and 
     Human Services shall treat such component as a service for 
     which payment shall be made to the laboratory under section 
     1848 of the Social Security Act (42 U.S.C. 1395w-4) and not 
     as an inpatient hospital service for which payment is made to 
     the hospital under section 1886(d) of such Act (42 U.S.C. 
     1395ww(d)) or as an outpatient hospital service for which 
     payment is made to the hospital under section 1833(t) of such 
     Act (42 U.S.C. 1395l(t)).
       (b) Definitions.--For purposes of this section:
       (1) Covered hospital.--The term ``covered hospital'' means, 
     with respect to an inpatient or an outpatient, a hospital 
     that had an arrangement with an independent laboratory that 
     was in effect as of July 22, 1999, under which a laboratory 
     furnished the technical component of physician pathology 
     services to fee-for-service medicare beneficiaries who were 
     hospital inpatients or outpatients, respectively, and 
     submitted claims for payment for such component to a medicare 
     carrier (that has a contract with the Secretary under section 
     1842 of the Social Security Act, 42 U.S.C. 1395u) and not to 
     such hospital.
       (2) Fee-for-service medicare beneficiary.--The term ``fee-
     for-service medicare beneficiary'' means an individual who--
       (A) is entitled to benefits under part A, or enrolled under 
     part B, or both, of such title; and
       (B) is not enrolled in any of the following:
       (i) A Medicare+Choice plan under part C of such title.
       (ii) A plan offered by an eligible organization under 
     section 1876 of such Act (42 U.S.C. 1395mm).
       (iii) A program of all-inclusive care for the elderly 
     (PACE) under section 1894 of such Act (42 U.S.C. 1395eee).
       (iv) A social health maintenance organization (SHMO) 
     demonstration project established under section 4018(b) of 
     the Omnibus Budget Reconciliation Act of 1987 (Public Law 
     100-203).
       (c) Effective Date.--This section applies to services 
     furnished during the 2-year period beginning on January 1, 
     2001.
       (d) GAO Report.--
       (1) Study.--The Comptroller General of the United States 
     shall conduct a study of the effects of the previous 
     provisions of this section on hospitals and laboratories and 
     access of fee-for-service medicare beneficiaries to the 
     technical component of physician pathology services.
       (2) Report.--Not later than April 1, 2002, the Comptroller 
     General shall submit to Congress a report on such study. The 
     report shall include recommendations about whether such 
     provisions should be extended after the end of the period 
     specified in subsection (c) for either or both inpatient and 
     outpatient hospital services, and whether the provisions 
     should be extended to other hospitals.

     SEC. 543. EXTENSION OF ADVISORY OPINION AUTHORITY.

       Section 1128D(b)(6) (42 U.S.C. 1320a-7d(b)(6)) is amended 
     by striking ``and before the date which is 4 years after such 
     date of enactment''.

     SEC. 544. CHANGE IN ANNUAL MEDPAC REPORTING.

       (a) Revision of Deadlines for Submission of Reports.--
       (1) In general.--Section 1805(b)(1)(D) (42 U.S.C. 1395b-
     6(b)(1)(D)) is amended by striking ``June 1 of each year 
     (beginning with 1998),'' and inserting ``June 15 of each 
     year,''.
       (2) Effective date.--The amendment made by paragraph (1) 
     applies beginning with 2001.
       (b) Requirement for on the Record Votes on 
     Recommendations.--Section 1805(b) (42 U.S.C. 1395b-6(b)) is 
     amended by adding at the end the following new paragraph:
       ``(7) Voting and reporting requirements.--With respect to 
     each recommendation contained in a report submitted under 
     paragraph (1), each member of the Commission shall vote on 
     the recommendation, and the Commission shall include, by 
     member, the results of that vote in the report containing the 
     recommendation.''.

     SEC. 545. DEVELOPMENT OF PATIENT ASSESSMENT INSTRUMENTS.

       (a) Development.--
       (1) In general.--Not later than January 1, 2005, the 
     Secretary of Health and Human Services shall submit to the 
     Committee on Ways and Means and the Committee on Commerce of 
     the House of Representatives and the Committee on Finance of 
     the Senate a report on the development of standard 
     instruments for the assessment of the health and functional 
     status of patients, for whom items and services described in 
     subsection (b) are furnished, and include in the report a 
     recommendation on the use of such standard instruments for 
     payment purposes.
       (2) Design for comparison of common elements.--The 
     Secretary shall design such standard instruments in a manner 
     such that--
       (A) elements that are common to the items and services 
     described in subsection (b) may be readily comparable and are 
     statistically compatible;
       (B) only elements necessary to meet program objectives are 
     collected; and
       (C) the standard instruments supersede any other assessment 
     instrument used before that date.
       (3) Consultation.--In developing an assessment instrument 
     under paragraph (1), the Secretary shall consult with the 
     Medicare Payment Advisory Commission, the Agency for 
     Healthcare Research and Quality, and qualified organizations 
     representing providers of services and suppliers under title 
     XVIII.
       (b) Description of Services.--For purposes of subsection 
     (a), items and services described in this subsection are 
     those items and services furnished to individuals entitled to 
     benefits under part A, or enrolled under part B, or both of 
     title XVIII of the Social Security Act for which payment is 
     made under such title, and include the following:
       (1) Inpatient and outpatient hospital services.
       (2) Inpatient and outpatient rehabilitation services.
       (3) Covered skilled nursing facility services.
       (4) Home health services.
       (5) Physical or occupational therapy or speech-language 
     pathology services.
       (6) Items and services furnished to such individuals 
     determined to have end stage renal disease.
       (7) Partial hospitalization services and other mental 
     health services.
       (8) Any other service for which payment is made under such 
     title as the Secretary determines to be appropriate.

     SEC. 546. GAO REPORT ON IMPACT OF THE EMERGENCY MEDICAL 
                   TREATMENT AND ACTIVE LABOR ACT (EMTALA) ON 
                   HOSPITAL EMERGENCY DEPARTMENTS.

       (a) Report.--The Comptroller General of the United States 
     shall submit a report to the Committee on Commerce and the 
     Committee on Ways and Means of the House of Representatives 
     and the Committee on Finance of the Senate by May 1, 2001, on 
     the effect of the Emergency Medical Treatment and Active 
     Labor Act on hospitals, emergency physicians, and physicians 
     covering emergency department call throughout the United 
     States.
       (b) Report Requirements.--The report should evaluate--
       (1) the extent to which hospitals, emergency physicians, 
     and physicians covering emergency department call provide 
     uncompensated services in relation to the requirements of 
     EMTALA;
       (2) the extent to which the regulatory requirements and 
     enforcement of EMTALA have expanded beyond the legislation's 
     original intent;
       (3) estimates for the total dollar amount of EMTALA-related 
     care uncompensated costs to emergency physicians, physicians 
     covering emergency department call, hospital emergency 
     departments, and other hospital services;
       (4) the extent to which different portions of the United 
     States may be experiencing different levels of uncompensated 
     EMTALA-related care;
       (5) the extent to which EMTALA would be classified as an 
     unfunded mandate if it were enacted today;
       (6) the extent to which States have programs to provide 
     financial support for such uncompensated care;
       (7) possible sources of funds, including medicare hospital 
     bad debt accounts, that are available to hospitals to assist 
     with the cost of such uncompensated care; and
       (8) the financial strain that illegal immigration 
     populations, the uninsured, and the underinsured place on 
     hospital emergency departments, other hospital services, 
     emergency physicians, and physicians covering emergency 
     department call.
       (c) Definition.--In this section, the terms ``Emergency 
     Medical Treatment and Active Labor Act'' and ``EMTALA'' mean 
     section 1867 of the Social Security Act (42 U.S.C. 1395dd).
 TITLE VI--PROVISIONS RELATING TO PART C (MEDICARE+CHOICE PROGRAM) AND 
                 OTHER MEDICARE MANAGED CARE PROVISIONS
              Subtitle A--Medicare+Choice Payment Reforms

     SEC. 601. INCREASE IN MINIMUM PAYMENT AMOUNT.

       Section 1853(c)(1)(B)(ii) (42 U.S.C. 1395w-23(c)(1)(B)(ii)) 
     is amended--
       (1) by striking ``(ii) For a succeeding year'' and 
     inserting ``(ii)(I) Subject to subclauses (II) and (III), for 
     a succeeding year''; and
       (2) by adding at the end the following new subclauses:

[[Page H11047]]

       ``(II) For 2001, for any area in a Metropolitan Statistical 
     Area within any of the 50 States and the District of Columbia 
     with a population of more than 250,000, $525 (and for any 
     other area within any of the 50 States, $475).
       ``(III) For 2001, for any area in a Metropolitan 
     Statistical Area outside the 50 States and the District of 
     Columbia with a population of more than 250,000, $525 (and 
     for any other area outside the 50 States and the District of 
     Columbia, $475), but not to exceed 120 percent of the amount 
     determined under this subparagraph for such area for 2000.''.

     SEC. 602. INCREASE IN MINIMUM PERCENTAGE INCREASE.

       Section 1853(c)(1)(C)(ii) (42 U.S.C. 1395w-23(c)(1)(C)(ii)) 
     is amended by inserting ``(or 103 percent in the case of 
     2001)'' after ``102 percent''.

     SEC. 603. 10-YEAR PHASE-IN OF RISK ADJUSTMENT.

       Section 1853(a)(3)(C)(ii) (42 U.S.C. 1395w-23(a)(3)(C)(ii)) 
     is amended--
       (1) in subclause (I), by striking ``and 2001'' and 
     inserting ``and each succeeding year through the first year 
     in which risk adjustment is based on data from inpatient 
     hospital and ambulatory settings''; and
       (2) by amending subclause (II) to read as follows:

       ``(II) beginning after such first year, insofar as such 
     risk adjustment is based on data from inpatient hospital and 
     ambulatory settings, the methodology shall be phased in equal 
     increments over a 10-year period that begins with such first 
     year.''.

     SEC. 604. TRANSITION TO REVISED MEDICARE+CHOICE PAYMENT 
                   RATES.

       (a) Announcement of Revised Medicare+Choice Payment 
     Rates.--Within 2 weeks after the date of the enactment of 
     this Act, the Secretary of Health and Human Services shall 
     determine, and shall announce (in a manner intended to 
     provide notice to interested parties) Medicare+Choice 
     capitation rates under section 1853 of the Social Security 
     Act (42 U.S.C. 1395w-23) for 2001, revised in accordance with 
     the provisions of this Act.
       (b) Reentry Into Program Permitted for Medicare+Choice 
     Programs in 2000.--A Medicare+Choice organization that 
     provided notice to the Secretary of Health and Human Services 
     before the date of the enactment of this Act that it was 
     terminating its contract under part C of title XVIII of the 
     Social Security Act or was reducing the service area of a 
     Medicare+Choice plan offered under such part shall be 
     permitted to continue participation under such part, or to 
     maintain the service area of such plan, for 2001 if it 
     provides the Secretary with the information described in 
     section 1854(a)(1) of the Social Security Act (42 U.S.C. 
     1395w-24(a)(1)) within 2 weeks after the date revised rates 
     are announced by the Secretary under subsection (a).
       (c) Revised Submission of Proposed Premiums and Related 
     Information.--If--
       (1) a Medicare+Choice organization provided notice to the 
     Secretary of Health and Human Services as of July 3, 2000, 
     that it was renewing its contract under part C of title XVIII 
     of the Social Security Act for all or part of the service 
     area or areas served under its current contract, and
       (2) any part of the service area or areas addressed in such 
     notice includes a payment area for which the Medicare+Choice 
     capitation rate under section 1853(c) of such Act (42 U.S.C. 
     1395w-23(c)) for 2001, as determined under subsection (a), is 
     higher than the rate previously determined for such year,
     such organization shall revise its submission of the 
     information described in section 1854(a)(1) of the Social 
     Security Act (42 U.S.C. 1395w-24(a)(1)), and shall submit 
     such revised information to the Secretary, within 2 weeks 
     after the date revised rates are announced by the Secretary 
     under subsection (a). In making such submission, the 
     organization may only reduce premiums, cost-sharing, enhance 
     benefits, or utilize the stabilization fund described in 
     section 1854(f)(2) of such Act (42 U.S.C. 1395w-24(f)(2)).
       (d) Disregard of New Rate Announcement in Applying Pass-
     Through for New National Coverage Determinations.--For 
     purposes of applying section 1852(a)(5) of the Social 
     Security Act (42 U.S.C. 1395w-22(a)(5)), the announcement of 
     revised rates under subsection (a) shall not be treated as an 
     announcement under section 1853(b) of such Act (42 U.S.C. 
     1395w-23(b)).

     SEC. 605. REVISION OF PAYMENT RATES FOR ESRD PATIENTS 
                   ENROLLED IN MEDICARE+CHOICE PLANS.

       (a) In General.--Section 1853(a)(1)(B) (42 U.S.C. 1395w-
     23(a)(1)(B)) is amended by adding at the end the following: 
     ``In establishing such rates, the Secretary shall provide for 
     appropriate adjustments to increase each rate to reflect the 
     demonstration rate (including the risk adjustment methodology 
     associated with such rate) of the social health maintenance 
     organization end-stage renal disease capitation 
     demonstrations (established by section 2355 of the Deficit 
     Reduction Act of 1984, as amended by section 13567(b) of the 
     Omnibus Budget Reconciliation Act of 1993), and shall compute 
     such rates by taking into account such factors as renal 
     treatment modality, age, and the underlying cause of the end-
     stage renal disease.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to payments for months beginning with January 
     2002.
       (c) Publication.--Not later than 6 months after the date of 
     the enactment of this Act, the Secretary of Health and Human 
     Services shall publish for public comment a description of 
     the appropriate adjustments described in the last sentence of 
     section 1853(a)(1)(B) of the Social Security Act (42 U.S.C. 
     1395w-23(a)(1)(B)), as added by subsection (a). The Secretary 
     shall publish such adjustments in final form by not later 
     than July 1, 2001, so that the amendment made by subsection 
     (a) is implemented on a timely basis consistent with 
     subsection (b).

     SEC. 606. PERMITTING PREMIUM REDUCTIONS AS ADDITIONAL 
                   BENEFITS UNDER MEDICARE+CHOICE PLANS.

       (a) In General.--
       (1) Authorization of part b premium reductions.--Section 
     1854(f)(1) (42 U.S.C. 1395w-24(f)(1)) is amended--
       (A) by redesignating subparagraph (E) as subparagraph (F); 
     and
       (B) by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) Premium reductions.--
       ``(i) In general.--Subject to clause (ii), as part of 
     providing any additional benefits required under subparagraph 
     (A), a Medicare+Choice organization may elect a reduction in 
     its payments under section 1853(a)(1)(A) with respect to a 
     Medicare+Choice plan and the Secretary shall apply such 
     reduction to reduce the premium under section 1839 of each 
     enrollee in such plan as provided in section 1840(i).
       ``(ii) Amount of reduction.--The amount of the reduction 
     under clause (i) with respect to any enrollee in a 
     Medicare+Choice plan--

       ``(I) may not exceed 125 percent of the premium described 
     under section 1839(a)(3); and
       ``(II) shall apply uniformly to each enrollee of the 
     Medicare+Choice plan to which such reduction applies.''.

       (2) Conforming amendments.--
       (A) Adjustment of payments to medicare+choice 
     organizations.--Section 1853(a)(1)(A) (42 U.S.C. 1395w-
     23(a)(1)(A)) is amended by inserting ``reduced by the amount 
     of any reduction elected under section 1854(f)(1)(E) and'' 
     after ``for that area,''.
       (B) Adjustment and payment of part b premiums.--
       (i) Adjustment of premiums.--Section 1839(a)(2) (42 U.S.C. 
     1395r(a)(2)) is amended by striking ``shall'' and all that 
     follows and inserting the following: ``shall be the amount 
     determined under paragraph (3), adjusted as required in 
     accordance with subsections (b), (c), and (f), and to reflect 
     80 percent of any reduction elected under section 
     1854(f)(1)(E).''.
       (ii) Payment of premiums.--Section 1840 (42 U.S.C. 1395s) 
     is amended by adding at the end the following new subsection:
       ``(i) In the case of an individual enrolled in a 
     Medicare+Choice plan, the Secretary shall provide for 
     necessary adjustments of the monthly beneficiary premium to 
     reflect 80 percent of any reduction elected under section 
     1854(f)(1)(E). This premium adjustment may be provided 
     directly or as an adjustment to any social security, railroad 
     retirement, and civil service retirement benefits, to the 
     extent which the Secretary determines that such an adjustment 
     is appropriate with the concurrence of the agencies 
     responsible for the administration of such benefits.''.
       (C) Information comparing plan premiums under part c.--
     Section 1851(d)(4)(B) (42 U.S.C. 1395w-21(d)(4)(B)) is 
     amended--
       (i) by striking ``Premiums.--The'' and inserting 
     ``Premiums.--
       ``(i) In general.--The''; and
       (ii) by adding at the end the following new clause:
       ``(ii) Reductions.--The reduction in part B premiums, if 
     any.''.
       (D) Treatment of reduction for purposes of determining 
     government contribution under part b.--Section 1844 (42 
     U.S.C. 1395w) is amended by adding at the end the following 
     new subsection:
       ``(c) The Secretary shall determine the Government 
     contribution under subparagraphs (A) and (B) of subsection 
     (a)(1) without regard to any premium reduction resulting from 
     an election under section 1854(f)(1)(E).''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to years beginning with 2002.

     SEC. 607. FULL IMPLEMENTATION OF RISK ADJUSTMENT FOR 
                   CONGESTIVE HEART FAILURE ENROLLEES FOR 2001.

       (a) In General.--Section 1853(a)(3)(C) (42 U.S.C. 1395w-
     23(a)(3)(C)) is amended--
       (1) in clause (ii), by striking ``Such risk adjustment'' 
     and inserting ``Except as provided in clause (iii), such risk 
     adjustment''; and
       (2) by adding at the end the following new clause:
       ``(iii) Full implementation of risk adjustment for 
     congestive heart failure enrollees for 2001.--

       ``(I) Exemption from phase-in.--Subject to subclause (II), 
     the Secretary shall fully implement the risk adjustment 
     methodology described in clause (i) with respect to each 
     individual who has had a qualifying congestive heart failure 
     inpatient diagnosis (as determined by the Secretary under 
     such risk adjustment methodology) during the period beginning 
     on July 1, 1999, and ending on June 30, 2000, and who is 
     enrolled in a coordinated care plan that is the only 
     coordinated care plan offered on January 1, 2001, in the 
     service area of the individual.
       ``(II) Period of application.--Subclause (I) shall only 
     apply during the 1-year period beginning on January 1, 
     2001.''.

       (b) Exclusion From Determination of the Budget Neutrality 
     Factor.--Section 1853(c)(5) (42 U.S.C. 1395w-23(c)(5)) is 
     amended by striking ``subsection (i)'' and inserting 
     ``subsections (a)(3)(C)(iii) and (i)''.

     SEC. 608. EXPANSION OF APPLICATION OF MEDICARE+CHOICE NEW 
                   ENTRY BONUS.

       (a) In General.--Section 1853(i)(1) (42 U.S.C. 1395w-
     23(i)(1)) is amended in the matter preceding subparagraph (A) 
     by inserting ``, or filed notice with the Secretary as of 
     October 3, 2000, that they will not be offering such a plan 
     as of January 1, 2001'' after ``January 1, 2000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply as if included in the enactment of BBRA.

[[Page H11048]]

     SEC. 609. REPORT ON INCLUSION OF CERTAIN COSTS OF THE 
                   DEPARTMENT OF VETERANS AFFAIRS AND MILITARY 
                   FACILITY SERVICES IN CALCULATING 
                   MEDICARE+CHOICE PAYMENT RATES.

       The Secretary of Health and Human Services shall report to 
     Congress by not later than January 1, 2003, on a method to 
     phase-in the costs of military facility services furnished by 
     the Department of Veterans Affairs, and the costs of military 
     facility services furnished by the Department of Defense, to 
     medicare-eligible beneficiaries in the calculation of an 
     area's Medicare+Choice capitation payment. Such report shall 
     include on a county-by-county basis--
       (1) the actual or estimated cost of such services to 
     medicare-eligible beneficiaries;
       (2) the change in Medicare+Choice capitation payment rates 
     if such costs are included in the calculation of payment 
     rates;
       (3) one or more proposals for the implementation of payment 
     adjustments to Medicare+Choice plans in counties where the 
     payment rate has been affected due to the failure to 
     calculate the cost of such services to medicare-eligible 
     beneficiaries; and
       (4) a system to ensure that when a Medicare+Choice enrollee 
     receives covered services through a facility of the 
     Department of Veterans Affairs or the Department of Defense 
     there is an appropriate payment recovery to the medicare 
     program under title XVIII of the Social Security Act.
               Subtitle B--Other Medicare+Choice Reforms

     SEC. 611. PAYMENT OF ADDITIONAL AMOUNTS FOR NEW BENEFITS 
                   COVERED DURING A CONTRACT TERM.

       (a) In General.--Section 1853(c)(7) (42 U.S.C. 1395w-
     23(c)(7)) is amended to read as follows:
       ``(7) Adjustment for national coverage determinations and 
     legislative changes in benefits.--If the Secretary makes a 
     determination with respect to coverage under this title or 
     there is a change in benefits required to be provided under 
     this part that the Secretary projects will result in a 
     significant increase in the costs to Medicare+Choice of 
     providing benefits under contracts under this part (for 
     periods after any period described in section 1852(a)(5)), 
     the Secretary shall adjust appropriately the payments to such 
     organizations under this part. Such projection and adjustment 
     shall be based on an analysis by the Chief Actuary of the 
     Health Care Financing Administration of the actuarial costs 
     associated with the new benefits.''.
       (b) Conforming Amendment.--Section 1852(a)(5) (42 U.S.C. 
     1395w-22(a)(5)) is amended--
       (1) in the heading, by inserting ``and legislative changes 
     in benefits'' after ``National coverage determinations'';
       (2) by inserting ``or legislative change in benefits 
     required to be provided under this part'' after ``national 
     coverage determination'';
       (3) in subparagraph (A), by inserting ``or legislative 
     change in benefits'' after ``such determination'';
       (4) in subparagraph (B), by inserting ``or legislative 
     change'' after ``if such coverage determination''; and
       (5) by adding at the end the following:
     ``The projection under the previous sentence shall be based 
     on an analysis by the Chief Actuary of the Health Care 
     Financing Administration of the actuarial costs associated 
     with the coverage determination or legislative change in 
     benefits.''.
       (c) Effective Date.--The amendments made by this section 
     are effective on the date of the enactment of this Act and 
     apply to national coverage determinations and legislative 
     changes in benefits occurring on or after such date.

     SEC. 612. RESTRICTION ON IMPLEMENTATION OF SIGNIFICANT NEW 
                   REGULATORY REQUIREMENTS MIDYEAR.

       (a) In General.--Section 1856(b) (42 U.S.C. 1395w-26(b)) is 
     amended by adding at the end the following new paragraph:
       ``(4) Prohibition of midyear implementation of significant 
     new regulatory requirements.--The Secretary may not 
     implement, other than at the beginning of a calendar year, 
     regulations under this section that impose new, significant 
     regulatory requirements on a Medicare+Choice organization or 
     plan.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     takes effect on the date of the enactment of this Act.

     SEC. 613. TIMELY APPROVAL OF MARKETING MATERIAL THAT FOLLOWS 
                   MODEL MARKETING LANGUAGE.

       (a) In General.--Section 1851(h) (42 U.S.C. 1395w-21(h)) is 
     amended--
       (1) in paragraph (1)(A), by inserting ``(or 10 days in the 
     case described in paragraph (5))'' after ``45 days''; and
       (2) by adding at the end the following new paragraph:
       ``(5) Special treatment of marketing material following 
     model marketing language.--In the case of marketing material 
     of an organization that uses, without modification, proposed 
     model language specified by the Secretary, the period 
     specified in paragraph (1)(A) shall be reduced from 45 days 
     to 10 days.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     apply to marketing material submitted on or after January 1, 
     2001.

     SEC. 614. AVOIDING DUPLICATIVE REGULATION.

       (a) In General.--Section 1856(b)(3)(B) (42 U.S.C. 1395w-
     26(b)(3)(B)) is amended--
       (1) in clause (i), by inserting ``(including cost-sharing 
     requirements)'' after ``Benefit requirements''; and
       (2) by adding at the end the following new clause:
       ``(iv) Requirements relating to marketing materials and 
     summaries and schedules of benefits regarding a 
     Medicare+Choice plan.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     take effect on the date of the enactment of this Act.

     SEC. 615. ELECTION OF UNIFORM LOCAL COVERAGE POLICY FOR 
                   MEDICARE+CHOICE PLAN COVERING MULTIPLE 
                   LOCALITIES.

       Section 1852(a)(2) (42 U.S.C. 1395w-22(a)(2)) is amended by 
     adding at the end the following new subparagraph:
       ``(C) Election of uniform coverage policy.--In the case of 
     a Medicare+Choice organization that offers a Medicare+Choice 
     plan in an area in which more than one local coverage policy 
     is applied with respect to different parts of the area, the 
     organization may elect to have the local coverage policy for 
     the part of the area that is most beneficial to 
     Medicare+Choice enrollees (as identified by the Secretary) 
     apply with respect to all Medicare+Choice enrollees enrolled 
     in the plan.''.

     SEC. 616. ELIMINATING HEALTH DISPARITIES IN MEDICARE+CHOICE 
                   PROGRAM.

       (a) Quality Assurance Program Focus on Racial and Ethnic 
     Minorities.--Subparagraphs (A) and (B) of section 1852(e)(2) 
     (42 U.S.C. 1395w-22(e)(2)) are each amended by adding at the 
     end the following:
     ``Such program shall include a separate focus (with respect 
     to all the elements described in this subparagraph) on racial 
     and ethnic minorities.''.
       (b) Report.--Section 1852(e) (42 U.S.C. 1395w-22(e)) is 
     amended by adding at the end the following new paragraph:
       ``(5) Report to congress.--
       ``(A) In general.--Not later than 2 years after the date of 
     the enactment of this paragraph, and biennially thereafter, 
     the Secretary shall submit to Congress a report regarding how 
     quality assurance programs conducted under this subsection 
     focus on racial and ethnic minorities.
       ``(B) Contents of report.--Each such report shall include 
     the following:
       ``(i) A description of the means by which such programs 
     focus on such racial and ethnic minorities.
       ``(ii) An evaluation of the impact of such programs on 
     eliminating health disparities and on improving health 
     outcomes, continuity and coordination of care, management of 
     chronic conditions, and consumer satisfaction.
       ``(iii) Recommendations on ways to reduce clinical outcome 
     disparities among racial and ethnic minorities.''.

     SEC. 617. MEDICARE+CHOICE PROGRAM COMPATIBILITY WITH EMPLOYER 
                   OR UNION GROUP HEALTH PLANS.

       (a) In General.--Section 1857 (42 U.S.C. 1395w-27) is 
     amended by adding at the end the following new subsection:
       ``(i) Medicare+Choice Program Compatibility With Employer 
     or Union Group Health Plans.--To facilitate the offering of 
     Medicare+Choice plans under contracts between Medicare+Choice 
     organizations and employers, labor organizations, or the 
     trustees of a fund established by 1 or more employers or 
     labor organizations (or combination thereof) to furnish 
     benefits to the entity's employees, former employees (or 
     combination thereof) or members or former members (or 
     combination thereof) of the labor organizations, the 
     Secretary may waive or modify requirements that hinder the 
     design of, the offering of, or the enrollment in such 
     Medicare+Choice plans.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies with respect to years beginning with 2001.

     SEC. 618. SPECIAL MEDIGAP ENROLLMENT ANTIDISCRIMINATION 
                   PROVISION FOR CERTAIN BENEFICIARIES.

       (a) Disenrollment Window in Accordance With Beneficiary's 
     Circumstance.--Section 1882(s)(3) (42 U.S.C. 1395ss(s)(3)) is 
     amended--
       (1) in subparagraph (A), in the matter following clause 
     (iii), by striking ``, subject to subparagraph (E), seeks to 
     enroll under the policy not later than 63 days after the date 
     of the termination of enrollment described in such 
     subparagraph'' and inserting ``seeks to enroll under the 
     policy during the period specified in subparagraph (E)''; and
       (2) by striking subparagraph (E) and inserting the 
     following new subparagraph:
       ``(E) For purposes of subparagraph (A), the time period 
     specified in this subparagraph is--
       ``(i) in the case of an individual described in 
     subparagraph (B)(i), the period beginning on the date the 
     individual receives a notice of termination or cessation of 
     all supplemental health benefits (or, if no such notice is 
     received, notice that a claim has been denied because of such 
     a termination or cessation) and ending on the date that is 63 
     days after the applicable notice;
       ``(ii) in the case of an individual described in clause 
     (ii), (iii), (v), or (vi) of subparagraph (B) whose 
     enrollment is terminated involuntarily, the period beginning 
     on the date that the individual receives a notice of 
     termination and ending on the date that is 63 days after the 
     date the applicable coverage is terminated;
       ``(iii) in the case of an individual described in 
     subparagraph (B)(iv)(I), the period beginning on the earlier 
     of (I) the date that the individual receives a notice of 
     termination, a notice of the issuer's bankruptcy or 
     insolvency, or other such similar notice, if any, and (II) 
     the date that the applicable coverage is terminated, and 
     ending on the date that is 63 days after the date the 
     coverage is terminated;
       ``(iv) in the case of an individual described in clause 
     (ii), (iii), (iv)(II), (iv)(III), (v), or (vi) of 
     subparagraph (B) who disenrolls voluntarily, the period 
     beginning on the date that is 60 days before the effective 
     date of the disenrollment and ending on the date that is 63 
     days after such effective date; and
       ``(v) in the case of an individual described in 
     subparagraph (B) but not described in the preceding 
     provisions of this subparagraph, the period beginning on the 
     effective date of the disenrollment and ending on the date 
     that is 63 days after such effective date.''.
       (b) Extended Medigap Access for Interrupted Trial 
     Periods.--Section 1882(s)(3) (42

[[Page H11049]]

     U.S.C. 1395ss(s)(3)), as amended by subsection (a), is 
     further amended by adding at the end the following new 
     subparagraph:
       ``(F)(i) Subject to clause (ii), for purposes of this 
     paragraph--
       ``(I) in the case of an individual described in 
     subparagraph (B)(v) (or deemed to be so described, pursuant 
     to this subparagraph) whose enrollment with an organization 
     or provider described in subclause (II) of such subparagraph 
     is involuntarily terminated within the first 12 months of 
     such enrollment, and who, without an intervening enrollment, 
     enrolls with another such organization or provider, such 
     subsequent enrollment shall be deemed to be an initial 
     enrollment described in such subparagraph; and
       ``(II) in the case of an individual described in clause 
     (vi) of subparagraph (B) (or deemed to be so described, 
     pursuant to this subparagraph) whose enrollment with a plan 
     or in a program described in such clause is involuntarily 
     terminated within the first 12 months of such enrollment, and 
     who, without an intervening enrollment, enrolls in another 
     such plan or program, such subsequent enrollment shall be 
     deemed to be an initial enrollment described in such clause.
       ``(ii) For purposes of clauses (v) and (vi) of subparagraph 
     (B), no enrollment of an individual with an organization or 
     provider described in clause (v)(II), or with a plan or in a 
     program described in clause (vi), may be deemed to be an 
     initial enrollment under this clause after the 2-year period 
     beginning on the date on which the individual first enrolled 
     with such an organization, provider, plan, or program.''.

     SEC. 619. RESTORING EFFECTIVE DATE OF ELECTIONS AND CHANGES 
                   OF ELECTIONS OF MEDICARE+CHOICE PLANS.

       (a) Open Enrollment.--Section 1851(f)(2) (42 U.S.C. 1395w-
     21(f)(2)) is amended by striking ``, except that if such 
     election or change is made after the 10th day of any calendar 
     month, then the election or change shall not take effect 
     until the first day of the second calendar month following 
     the date on which the election or change is made''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to elections and changes of coverage made on or 
     after January 1, 2001.

     SEC. 620. PERMITTING ESRD BENEFICIARIES TO ENROLL IN ANOTHER 
                   MEDICARE+CHOICE PLAN IF THE PLAN IN WHICH THEY 
                   ARE ENROLLED IS TERMINATED.

       (a) In General.--Section 1851(a)(3)(B) (42 U.S.C. 1395w-
     21(a)(3)(B)) is amended by striking ``except that'' and all 
     that follows and inserting the following: ``except that--
       ``(i) an individual who develops end-stage renal disease 
     while enrolled in a Medicare+Choice plan may continue to be 
     enrolled in that plan; and
       ``(ii) in the case of such an individual who is enrolled in 
     a Medicare+Choice plan under clause (i) (or subsequently 
     under this clause), if the enrollment is discontinued under 
     circumstances described in section 1851(e)(4)(A), then the 
     individual will be treated as a `Medicare+Choice eligible 
     individual' for purposes of electing to continue enrollment 
     in another Medicare+Choice plan.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to terminations and discontinuations occurring on or 
     after the date of the enactment of this Act.
       (2) Application to prior plan terminations.--Clause (ii) of 
     section 1851(a)(3)(B) of the Social Security Act (as inserted 
     by subsection (a)) also shall apply to individuals whose 
     enrollment in a Medicare+Choice plan was terminated or 
     discontinued after December 31, 1998, and before the date of 
     the enactment of this Act. In applying this paragraph, such 
     an individual shall be treated, for purposes of part C of 
     title XVIII of the Social Security Act, as having 
     discontinued enrollment in such a plan as of the date of the 
     enactment of this Act.

     SEC. 621. PROVIDING CHOICE FOR SKILLED NURSING FACILITY 
                   SERVICES UNDER THE MEDICARE+CHOICE PROGRAM.

       (a) In General.--Section 1852 (42 U.S.C. 1395w-22) is 
     amended by adding at the end the following new subsection:
       ``(l) Return to Home Skilled Nursing Facilities for Covered 
     Post-Hospital Extended Care Services.--
       ``(1) Ensuring return to home snf.--
       ``(A) In general.--In providing coverage of post-hospital 
     extended care services, a Medicare+Choice plan shall provide 
     for such coverage through a home skilled nursing facility if 
     the following conditions are met:
       ``(i) Enrollee election.--The enrollee elects to receive 
     such coverage through such facility.
       ``(ii) SNF agreement.--The facility has a contract with the 
     Medicare+Choice organization for the provision of such 
     services, or the facility agrees to accept substantially 
     similar payment under the same terms and conditions that 
     apply to similarly situated skilled nursing facilities that 
     are under contract with the Medicare+Choice organization for 
     the provision of such services and through which the enrollee 
     would otherwise receive such services.
       ``(B) Manner of payment to home snf.--The organization 
     shall provide payment to the home skilled nursing facility 
     consistent with the contract or the agreement described in 
     subparagraph (A)(ii), as the case may be.
       ``(2) No less favorable coverage.--The coverage provided 
     under paragraph (1) (including scope of services, cost-
     sharing, and other criteria of coverage) shall be no less 
     favorable to the enrollee than the coverage that would be 
     provided to the enrollee with respect to a skilled nursing 
     facility the post-hospital extended care services of which 
     are otherwise covered under the Medicare+Choice plan.
       ``(3) Rule of construction.--Nothing in this subsection 
     shall be construed to do the following:
       ``(A) To require coverage through a skilled nursing 
     facility that is not otherwise qualified to provide benefits 
     under part A for medicare beneficiaries not enrolled in a 
     Medicare+Choice plan.
       ``(B) To prevent a skilled nursing facility from refusing 
     to accept, or imposing conditions upon the acceptance of, an 
     enrollee for the receipt of post-hospital extended care 
     services.
       ``(4) Definitions.--In this subsection:
       ``(A) Home skilled nursing facility.--The term `home 
     skilled nursing facility' means, with respect to an enrollee 
     who is entitled to receive post-hospital extended care 
     services under a Medicare+Choice plan, any of the following 
     skilled nursing facilities:
       ``(i) SNF residence at time of admission.--The skilled 
     nursing facility in which the enrollee resided at the time of 
     admission to the hospital preceding the receipt of such post-
     hospital extended care services.
       ``(ii) SNF in continuing care retirement community.--A 
     skilled nursing facility that is providing such services 
     through a continuing care retirement community (as defined in 
     subparagraph (B)) which provided residence to the enrollee at 
     the time of such admission.
       ``(iii) SNF residence of spouse at time of discharge.--The 
     skilled nursing facility in which the spouse of the enrollee 
     is residing at the time of discharge from such hospital.
       ``(B) Continuing care retirement community.--The term 
     `continuing care retirement community' means, with respect to 
     an enrollee in a Medicare+Choice plan, an arrangement under 
     which housing and health-related services are provided (or 
     arranged) through an organization for the enrollee under an 
     agreement that is effective for the life of the enrollee or 
     for a specified period.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies with respect to contracts entered into or renewed on 
     or after the date of the enactment of this Act.
       (c) MedPAC Study.--
       (1) Study.--The Medicare Payment Advisory Commission shall 
     conduct a study analyzing the effects of the amendment made 
     by subsection (a) on Medicare+Choice organizations. In 
     conducting such study, the Commission shall examine the 
     effects (if any) such amendment has had on--
       (A) the scope of additional benefits provided under the 
     Medicare+Choice program;
       (B) the administrative and other costs incurred by 
     Medicare+Choice organizations;
       (C) the contractual relationships between such 
     organizations and skilled nursing facilities.
       (2) Report.--Not later than 2 years after the date of the 
     enactment of this Act, the Commission shall submit to 
     Congress a report on the study conducted under paragraph (1).

     SEC. 622. PROVIDING FOR ACCOUNTABILITY OF MEDICARE+CHOICE 
                   PLANS.

       (a) Mandatory Review of ACR Submissions by the Chief 
     Actuary of the Health Care Financing Administration.--Section 
     1854(a)(5)(A) (42 U.S.C. 1395w-24(a)(5)(A)) is amended--
       (1) by striking ``value'' and inserting ``values''; and
       (2) by adding at the end the following: ``The Chief Actuary 
     of the Health Care Financing Administration shall review the 
     actuarial assumptions and data used by the Medicare+Choice 
     organization with respect to such rates, amounts, and values 
     so submitted to determine the appropriateness of such 
     assumptions and data.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to submissions made on or after January 1, 2001.
                 Subtitle C--Other Managed Care Reforms

     SEC. 631. 1-YEAR EXTENSION OF SOCIAL HEALTH MAINTENANCE 
                   ORGANIZATION (SHMO) DEMONSTRATION PROJECT.

       Section 4018(b)(1) of the Omnibus Budget Reconciliation Act 
     of 1987, as amended by section 531(a)(1) of BBRA (113 Stat. 
     1501A-388), is amended by striking ``18 months'' and 
     inserting ``30 months''.

     SEC. 632. REVISED TERMS AND CONDITIONS FOR EXTENSION OF 
                   MEDICARE COMMUNITY NURSING ORGANIZATION (CNO) 
                   DEMONSTRATION PROJECT.

       (a) In General.--Section 532 of BBRA (113 Stat. 1501A-388) 
     is amended--
       (1) in subsection (a), by striking the second sentence; and
       (2) by striking subsection (b) and inserting the following 
     new subsection:
       ``(b) Terms and Conditions.--
       ``(1) January through september 2000.--For the 9-month 
     period beginning with January 2000, any such demonstration 
     project shall be conducted under the same terms and 
     conditions as applied to such demonstration during 1999.
       ``(2) October 2000 through december 2001.--For the 15-month 
     period beginning with October 2000, any such demonstration 
     project shall be conducted under the same terms and 
     conditions as applied to such demonstration during 1999, 
     except that the following modifications shall apply:
       ``(A) Basic capitation rate.--The basic capitation rate 
     paid for services covered under the project (other than case 
     management services) per enrollee per month and furnished 
     during--
       ``(i) the period beginning with October 1, 2000, and ending 
     with December 31, 2000, shall be determined by actuarially 
     adjusting the actual capitation rate paid for such services 
     in 1999 for inflation, utilization, and other changes to the 
     CNO service package, and by reducing such adjusted capitation 
     rate by 10 percent in the case of the demonstration sites 
     located in Arizona, Minnesota, and Illinois, and 15 percent 
     for the demonstration site located in New York; and
       ``(ii) 2001 shall be determined by actuarially adjusting 
     the capitation rate determined under

[[Page H11050]]

     clause (i) for inflation, utilization, and other changes to 
     the CNO service package.
       ``(B) Targeted case management fee.--Effective October 1, 
     2000--
       ``(i) the case management fee per enrollee per month for--

       ``(I) the period described in subparagraph (A)(i) shall be 
     determined by actuarially adjusting the case management fee 
     for 1999 for inflation; and
       ``(II) 2001 shall be determined by actuarially adjusting 
     the amount determined under subclause (I) for inflation; and

       ``(ii) such case management fee shall be paid only for 
     enrollees who are classified as moderately frail or frail 
     pursuant to criteria established by the Secretary.
       ``(C) Greater uniformity in clinical features among 
     sites.--Each project shall implement for each site--
       ``(i) protocols for periodic telephonic contact with 
     enrollees based on--

       ``(I) the results of such standardized written health 
     assessment; and
       ``(II) the application of appropriate care planning 
     approaches;

       ``(ii) disease management programs for targeted diseases 
     (such as congestive heart failure, arthritis, diabetes, and 
     hypertension) that are highly prevalent in the enrolled 
     populations;
       ``(iii) systems and protocols to track enrollees through 
     hospitalizations, including pre-admission planning, 
     concurrent management during inpatient hospital stays, and 
     post-discharge assessment, planning, and follow-up; and
       ``(iv) standardized patient educational materials for 
     specified diseases and health conditions.
       ``(D) Quality improvement.--Each project shall implement at 
     each site once during the 15-month period--
       ``(i) enrollee satisfaction surveys; and
       ``(ii) reporting on specified quality indicators for the 
     enrolled population.
       ``(c) Evaluation.--
       ``(1) Preliminary report.--Not later than July 1, 2001, the 
     Secretary of Health and Human Services shall submit to the 
     Committees on Ways and Means and Commerce of the House of 
     Representatives and the Committee on Finance of the Senate a 
     preliminary report that--
       ``(A) evaluates such demonstration projects for the period 
     beginning July 1, 1997, and ending December 31, 1999, on a 
     site-specific basis with respect to the impact on per 
     beneficiary spending, specific health utilization measures, 
     and enrollee satisfaction; and
       ``(B) includes a similar evaluation of such projects for 
     the portion of the extension period that occurs after 
     September 30, 2000.
       ``(2) Final report.--The Secretary shall submit a final 
     report to such Committees on such demonstration projects not 
     later than July 1, 2002. Such report shall include the same 
     elements as the preliminary report required by paragraph (1), 
     but for the period after December 31, 1999.
       ``(3) Methodology for spending comparisons.--Any evaluation 
     of the impact of the demonstration projects on per 
     beneficiary spending included in such reports shall include a 
     comparison of--
       ``(A) data for all individuals who--
       ``(i) were enrolled in such demonstration projects as of 
     the first day of the period under evaluation; and
       ``(ii) were enrolled for a minimum of 6 months thereafter; 
     with
       ``(B) data for a matched sample of individuals who are 
     enrolled under part B of title XVIII of the Social Security 
     Act and are not enrolled in such a project, or in a 
     Medicare+Choice plan under part C of such title, a plan 
     offered by an eligible organization under section 1876 of 
     such Act, or a health care prepayment plan under section 
     1833(a)(1)(A) of such Act.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall be effective as if included in the enactment of section 
     532 of BBRA (113 Stat. 1501A-388).

     SEC. 633. EXTENSION OF MEDICARE MUNICIPAL HEALTH SERVICES 
                   DEMONSTRATION PROJECTS.

       Section 9215(a) of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985 (42 U.S.C. 1395b-1 note), as 
     amended by section 6135 of the Omnibus Budget Reconciliation 
     Act of 1989, section 13557 of the Omnibus Budget 
     Reconciliation Act of 1993, section 4017 of BBA, and section 
     534 of BBRA (113 Stat. 1501A-390), is amended by striking 
     ``December 31, 2002'' and inserting ``December 31, 2004''.

     SEC. 634. SERVICE AREA EXPANSION FOR MEDICARE COST CONTRACTS 
                   DURING TRANSITION PERIOD.

       Section 1876(h)(5) (42 U.S.C. 1395mm(h)(5)) is amended--
       (1) by redesignating subparagraph (B) as subparagraph (C); 
     and
       (2) by inserting after subparagraph (A), the following new 
     subparagraph:
       ``(B) Subject to subparagraph (C), the Secretary shall 
     approve an application for a modification to a reasonable 
     cost contract under this section in order to expand the 
     service area of such contract if--
       ``(i) such application is submitted to the Secretary on or 
     before September 1, 2003; and
       ``(ii) the Secretary determines that the organization with 
     the contract continues to meet the requirements applicable to 
     such organizations and contracts under this section.''.
                          TITLE VII--MEDICAID

     SEC. 701. DSH PAYMENTS.

       (a) Modifications to DSH Allotments.--
       (1) Increased allotments for fiscal years 2001 and 2002.--
       (A) In general.--Section 1923(f) (42 U.S.C. 1396r-4(f))) is 
     amended--
       (i) in paragraph (2), by striking ``The DSH allotment'' and 
     inserting ``Subject to paragraph (4), the DSH allotment'';
       (ii) by redesignating paragraph (4) as paragraph (6); and
       (iii) by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) Special rule for fiscal years 2001 and 2002.--
       ``(A) In general.--Notwithstanding paragraph (2), the DSH 
     allotment for any State for--
       ``(i) fiscal year 2001, shall be the DSH allotment 
     determined under paragraph (2) for fiscal year 2000 
     increased, subject to subparagraph (B) and paragraph (5), by 
     the percentage change in the consumer price index for all 
     urban consumers (all items; U.S. city average) for fiscal 
     year 2000; and
       ``(ii) fiscal year 2002, shall be the DSH allotment 
     determined under clause (i) increased, subject to 
     subparagraph (B) and paragraph (5), by the percentage change 
     in the consumer price index for all urban consumers (all 
     items; U.S. city average) for fiscal year 2001.
       ``(B) Limitation.--Subparagraph (B) of paragraph (3) shall 
     apply to subparagraph (A) of this paragraph in the same 
     manner as that subparagraph (B) applies to paragraph (3)(A).
       ``(C) No application to allotments after fiscal year 
     2002.--The DSH allotment for any State for fiscal year 2003 
     or any succeeding fiscal year shall be determined under 
     paragraph (3) without regard to the DSH allotments determined 
     under subparagraph (A) of this paragraph.''.
       (2) Special rule for medicaid dsh allotment for extremely 
     low dsh states.--
       (A) In general.--Section 1923(f) (42 U.S.C. 1396r-4(f)), as 
     amended by paragraph (1), is amended by inserting after 
     paragraph (4) the following new paragraph:
       ``(5) Special rule for extremely low dsh states.--In the 
     case of a State in which the total expenditures under the 
     State plan (including Federal and State shares) for 
     disproportionate share hospital adjustments under this 
     section for fiscal year 1999, as reported to the 
     Administrator of the Health Care Financing Administration as 
     of August 31, 2000, is greater than 0 but less than 1 percent 
     of the State's total amount of expenditures under the State 
     plan for medical assistance during the fiscal year, the DSH 
     allotment for fiscal year 2001 shall be increased to 1 
     percent of the State's total amount of expenditures under 
     such plan for such assistance during such fiscal year. In 
     subsequent fiscal years, such increased allotment is subject 
     to an increase for inflation as provided in paragraph 
     (3)(A).''.
       (B) Conforming amendment.--Section 1923(f)(3)(A) (42 U.S.C. 
     1396r-4(f)(3)(A)) is amended by inserting ``and paragraph 
     (5)'' after ``subparagraph (B)''.
       (3) Effective date.--The amendments made by paragraphs (1) 
     and (2) take effect on the date the final regulation required 
     under section 705(a) (relating to the application of an 
     aggregate upper payment limit test for State medicaid 
     spending for inpatient hospital services, outpatient hospital 
     services, nursing facility services, intermediate care 
     facility services for the mentally retarded, and clinic 
     services provided by government facilities that are not 
     State-owned or operated facilities) is published in the 
     Federal Register.
       (b) Assuring Identification of Medicaid Managed Care 
     Patients.--
       (1) In general.--Section 1932 (42 U.S.C. 1396u-2) is 
     amended by adding at the end the following new subsection:
       ``(g) Identification of Patients for Purposes of Making DSH 
     Payments.--Each contract with a managed care entity under 
     section 1903(m) or under section 1905(t)(3) shall require the 
     entity either--
       ``(1) to report to the State information necessary to 
     determine the hospital services provided under the contract 
     (and the identity of hospitals providing such services) for 
     purposes of applying sections 1886(d)(5)(F) and 1923; or
       ``(2) to include a sponsorship code in the identification 
     card issued to individuals covered under this title in order 
     that a hospital may identify a patient as being entitled to 
     benefits under this title.''.
       (2) Clarification of counting managed care medicaid 
     patients.--Section 1923 (42 U.S.C. 1396r-4) is amended--
       (A) in subsection (a)(2)(D), by inserting after ``the 
     proportion of low-income and medicaid patients'' the 
     following: ``(including such patients who receive benefits 
     through a managed care entity)'';
       (B) in subsection (b)(2), by inserting after ``a State plan 
     approved under this title in a period'' the following: 
     ``(regardless of whether such patients receive medical 
     assistance on a fee-for-service basis or through a managed 
     care entity)''; and
       (C) in subsection (b)(3)(A)(i), by inserting after ``under 
     a State plan under this title'' the following: ``(regardless 
     of whether the services were furnished on a fee-for-service 
     basis or through a managed care entity)''.
       (3) Effective dates.--
       (A) The amendment made by paragraph (1) applies to 
     contracts as of January 1, 2001.
       (B) The amendments made by paragraph (2) apply to payments 
     made on or after January 1, 2001.
       (c) Application of Medicaid DSH Transition Rule to Public 
     Hospitals in All States.--
       (1) In general.--During the period described in paragraph 
     (3), with respect to a State, section 4721(e) of the Balanced 
     Budget Act of 1997 (Public Law 105-33; 111 Stat. 514), as 
     amended by section 607 of BBRA (113 Stat. 1501A-321) shall be 
     applied as though--
       (A) ``September 30, 2002'' were substituted for ``July 1, 
     1997'' each place it appears;
       (B) ``hospitals owned or operated by a State (as defined 
     for purposes of title XIX of such

[[Page H11051]]

     Act), or by an instrumentality or a unit of government within 
     a State (as so defined)'' were substituted for ``the State of 
     California'';
       (C) paragraph (3) were redesignated as paragraph (4);
       (D) ``and'' were omitted from the end of paragraph (2); and
       (E) the following new paragraph were inserted after 
     paragraph (2):
       ``(3) `(as defined in subparagraph (B) but without regard 
     to clause (ii) of that subparagraph and subject to subsection 
     (d))' were substituted for `(as defined in subparagraph (B))' 
     in subparagraph (A) of such section; and''.
       (2) Special rule.--With respect to California, section 
     4721(e) of the Balanced Budget Act of 1997 (Public Law 105-
     33; 111 Stat. 514) shall be applied without regard to 
     paragraph (1).
       (3) Period described.--The period described in this 
     paragraph is the period that begins, with respect to a State, 
     on the first day of the first State fiscal year that begins 
     after September 30, 2002, and ends on the last day of the 
     succeeding State fiscal year.
       (4) Application to waivers.--With respect to a State 
     operating under a waiver of the requirements of title XIX of 
     the Social Security Act (42 U.S.C. 1396 et seq.) under 
     section 1115 of such Act (42 U.S.C. 1315), the amount by 
     which any payment adjustment made by the State under title 
     XIX of such Act (42 U.S.C. 1396 et seq.), after the 
     application of section 4721(e) of the Balanced Budget Act of 
     1997 under paragraph (1) to such State, exceeds the costs of 
     furnishing hospital services provided by hospitals described 
     in such section shall be fully reflected as an increase in 
     the baseline expenditure limit for such waiver.
       (d) Assistance for Certain Public Hospitals.--
       (1) In general.--Beginning with fiscal year 2002, 
     notwithstanding section 1923(f) of the Social Security Act 
     (42 U.S.C. 1396r-4(f)) and subject to paragraph (3), with 
     respect to a State, payment adjustments made under title XIX 
     of the Social Security Act (42 U.S.C. 1396 et seq.) to a 
     hospital described in paragraph (2) shall be made without 
     regard to the DSH allotment limitation for the State 
     determined under section 1923(f) of that Act (42 U.S.C. 
     1396r-4(f)).
       (2) Hospital described.--A hospital is described in this 
     paragraph if the hospital--
       (A) is owned or operated by a State (as defined for 
     purposes of title XIX of the Social Security Act), or by an 
     instrumentality or a unit of government within a State (as so 
     defined);
       (B) as of October 1, 2000--
       (i) is in existence and operating as a hospital described 
     in subparagraph (A); and
       (ii) is not receiving disproportionate share hospital 
     payments from the State in which it is located under title 
     XIX of such Act; and
       (C) has a low-income utilization rate (as defined in 
     section 1923(b)(3) of the Social Security Act (42 U.S.C. 
     1396r-4(b)(3))) in excess of 65 percent.
       (3) Limitation on expenditures.--
       (A) In general.--With respect to any fiscal year, the 
     aggregate amount of Federal financial participation that may 
     be provided for payment adjustments described in paragraph 
     (1) for that fiscal year for all States may not exceed the 
     amount described in subparagraph (B) for the fiscal year.
       (B) Amount described.--The amount described in this 
     subparagraph for a fiscal year is as follows:
       (i) For fiscal year 2002, $15,000,000.
       (ii) For fiscal year 2003, $176,000,000.
       (iii) For fiscal year 2004, $269,000,000.
       (iv) For fiscal year 2005, $330,000,000.
       (v) For fiscal year 2006 and each fiscal year thereafter, 
     $375,000,000.
       (e) DSH Payment Accountability Standards.--Not later than 
     September 30, 2002, the Secretary of Health and Human 
     Services shall implement accountability standards to ensure 
     that Federal funds provided with respect to disproportionate 
     share hospital adjustments made under section 1923 of the 
     Social Security Act (42 U.S.C. 1396r-4) are used to reimburse 
     States and hospitals eligible for such payment adjustments 
     for providing uncompensated health care to low-income 
     patients and are otherwise made in accordance with the 
     requirements of section 1923 of that Act.

     SEC. 702. NEW PROSPECTIVE PAYMENT SYSTEM FOR FEDERALLY-
                   QUALIFIED HEALTH CENTERS AND RURAL HEALTH 
                   CLINICS.

       (a) In General.--Section 1902(a) (42 U.S.C. 1396a(a)) is 
     amended--
       (1) in paragraph (13)--
       (A) in subparagraph (A), by adding ``and'' at the end;
       (B) in subparagraph (B), by striking ``and'' at the end; 
     and
       (C) by striking subparagraph (C); and
       (2) by inserting after paragraph (14) the following new 
     paragraph:
       ``(15) provide for payment for services described in clause 
     (B) or (C) of section 1905(a)(2) under the plan in accordance 
     with subsection (aa);''.
       (b) New Prospective Payment System.--Section 1902 (42 
     U.S.C. 1396a) is amended by adding at the end the following:
       ``(aa) Payment for Services Provided by Federally-Qualified 
     Health Centers and Rural Health Clinics.--
       ``(1) In general.--Beginning with fiscal year 2001 and each 
     succeeding fiscal year, the State plan shall provide for 
     payment for services described in section 1905(a)(2)(C) 
     furnished by a Federally-qualified health center and services 
     described in section 1905(a)(2)(B) furnished by a rural 
     health clinic in accordance with the provisions of this 
     subsection.
       ``(2) Fiscal year 2001.--Subject to paragraph (4), for 
     services furnished during fiscal year 2001, the State plan 
     shall provide for payment for such services in an amount 
     (calculated on a per visit basis) that is equal to 100 
     percent of the average of the costs of the center or clinic 
     of furnishing such services during fiscal years 1999 and 2000 
     which are reasonable and related to the cost of furnishing 
     such services, or based on such other tests of reasonableness 
     as the Secretary prescribes in regulations under section 
     1833(a)(3), or, in the case of services to which such 
     regulations do not apply, the same methodology used under 
     section 1833(a)(3), adjusted to take into account any 
     increase or decrease in the scope of such services furnished 
     by the center or clinic during fiscal year 2001.
       ``(3) Fiscal year 2002 and succeeding fiscal years.--
     Subject to paragraph (4), for services furnished during 
     fiscal year 2002 or a succeeding fiscal year, the State plan 
     shall provide for payment for such services in an amount 
     (calculated on a per visit basis) that is equal to the amount 
     calculated for such services under this subsection for the 
     preceding fiscal year--
       ``(A) increased by the percentage increase in the MEI (as 
     defined in section 1842(i)(3)) applicable to primary care 
     services (as defined in section 1842(i)(4)) for that fiscal 
     year; and
       ``(B) adjusted to take into account any increase or 
     decrease in the scope of such services furnished by the 
     center or clinic during that fiscal year.
       ``(4) Establishment of initial year payment amount for new 
     centers or clinics.--In any case in which an entity first 
     qualifies as a Federally-qualified health center or rural 
     health clinic after fiscal year 2000, the State plan shall 
     provide for payment for services described in section 
     1905(a)(2)(C) furnished by the center or services described 
     in section 1905(a)(2)(B) furnished by the clinic in the first 
     fiscal year in which the center or clinic so qualifies in an 
     amount (calculated on a per visit basis) that is equal to 100 
     percent of the costs of furnishing such services during such 
     fiscal year based on the rates established under this 
     subsection for the fiscal year for other such centers or 
     clinics located in the same or adjacent area with a similar 
     case load or, in the absence of such a center or clinic, in 
     accordance with the regulations and methodology referred to 
     in paragraph (2) or based on such other tests of 
     reasonableness as the Secretary may specify. For each fiscal 
     year following the fiscal year in which the entity first 
     qualifies as a Federally-qualified health center or rural 
     health clinic, the State plan shall provide for the payment 
     amount to be calculated in accordance with paragraph (3).
       ``(5) Administration in the case of managed care.--
       ``(A) In general.--In the case of services furnished by a 
     Federally-qualified health center or rural health clinic 
     pursuant to a contract between the center or clinic and a 
     managed care entity (as defined in section 1932(a)(1)(B)), 
     the State plan shall provide for payment to the center or 
     clinic by the State of a supplemental payment equal to the 
     amount (if any) by which the amount determined under 
     paragraphs (2), (3), and (4) of this subsection exceeds the 
     amount of the payments provided under the contract.
       ``(B) Payment schedule.--The supplemental payment required 
     under subparagraph (A) shall be made pursuant to a payment 
     schedule agreed to by the State and the Federally-qualified 
     health center or rural health clinic, but in no case less 
     frequently than every 4 months.
       ``(6) Alternative payment methodologies.--Notwithstanding 
     any other provision of this section, the State plan may 
     provide for payment in any fiscal year to a Federally-
     qualified health center for services described in section 
     1905(a)(2)(C) or to a rural health clinic for services 
     described in section 1905(a)(2)(B) in an amount which is 
     determined under an alternative payment methodology that--
       ``(A) is agreed to by the State and the center or clinic; 
     and
       ``(B) results in payment to the center or clinic of an 
     amount which is at least equal to the amount otherwise 
     required to be paid to the center or clinic under this 
     section.''.
       (c) Conforming Amendments.--
       (1) Section 4712 of the BBA (Public Law 105-33; 111 Stat. 
     508) is amended by striking subsection (c).
       (2) Section 1915(b) (42 U.S.C. 1396n(b)) is amended by 
     striking ``1902(a)(13)(C)'' and inserting ``1902(a)(15), 
     1902(aa),''.
       (d) GAO Study of Future Rebasing.--The Comptroller General 
     of the United States shall provide for a study on the need 
     for, and how to, rebase or refine costs for making payment 
     under the medicaid program for services provided by 
     Federally-qualified health centers and rural health clinics 
     (as provided under the amendments made by this section). The 
     Comptroller General shall provide for submittal of a report 
     on such study to Congress by not later than 4 years after the 
     date of the enactment of this Act.
       (e) Effective Date.--The amendments made by this section 
     take effect on October 1, 2000, and apply to services 
     furnished on or after such date.

     SEC. 703. STREAMLINED APPROVAL OF CONTINUED STATE-WIDE 
                   SECTION 1115 MEDICAID WAIVERS.

       (a) In General.--Section 1115 (42 U.S.C. 1315) is amended 
     by adding at the end the following new subsection:
       ``(f) An application by the chief executive officer of a 
     State for an extension of a waiver project the State is 
     operating under an extension under subsection (e) (in this 
     subsection referred to as the `waiver project') shall be 
     submitted and approved or disapproved in accordance with the 
     following:
       ``(1) The application for an extension of the waiver 
     project shall be submitted to the Secretary at least 120 days 
     prior to the expiration of the current period of the waiver 
     project.
       ``(2) Not later than 45 days after the date such 
     application is received by the Secretary, the Secretary shall 
     notify the State if the Secretary intends to review the terms 
     and conditions of the

[[Page H11052]]

     waiver project. A failure to provide such notification shall 
     be deemed to be an approval of the application.
       ``(3) Not later than 45 days after the date a notification 
     is made in accordance with paragraph (2), the Secretary shall 
     inform the State of proposed changes in the terms and 
     conditions of the waiver project. A failure to provide such 
     information shall be deemed to be an approval of the 
     application.
       ``(4) During the 30-day period that begins on the date 
     information described in paragraph (3) is provided to a 
     State, the Secretary shall negotiate revised terms and 
     conditions of the waiver project with the State.
       ``(5)(A) Not later than 120 days after the date an 
     application for an extension of the waiver project is 
     submitted to the Secretary (or such later date agreed to by 
     the chief executive officer of the State), the Secretary 
     shall--
       ``(i) approve the application subject to such modifications 
     in the terms and conditions--
       ``(I) as have been agreed to by the Secretary and the 
     State; or
       ``(II) in the absence of such agreement, as are determined 
     by the Secretary to be reasonable, consistent with the 
     overall objectives of the waiver project, and not in 
     violation of applicable law; or
       ``(ii) disapprove the application.
       ``(B) A failure by the Secretary to approve or disapprove 
     an application submitted under this subsection in accordance 
     with the requirements of subparagraph (A) shall be deemed to 
     be an approval of the application subject to such 
     modifications in the terms and conditions as have been agreed 
     to (if any) by the Secretary and the State.
       ``(6) An approval of an application for an extension of a 
     waiver project under this subsection shall be for a period 
     not to exceed 3 years.
       ``(7) An extension of a waiver project under this 
     subsection shall be subject to the final reporting and 
     evaluation requirements of paragraphs (4) and (5) of 
     subsection (e) (taking into account the extension under this 
     subsection with respect to any timing requirements imposed 
     under those paragraphs).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     applies to requests for extensions of demonstration projects 
     pending or submitted on or after the date of the enactment of 
     this Act.

     SEC. 704. MEDICAID COUNTY-ORGANIZED HEALTH SYSTEMS.

       (a) In General.--Section 9517(c)(3)(C) of the Comprehensive 
     Omnibus Budget Reconciliation Act of 1985 is amended by 
     striking ``10 percent'' and inserting ``14 percent''.
       (b) Effective Date.--The amendment made by subsection (a) 
     takes effect on the date of the enactment of this Act.

     SEC. 705. DEADLINE FOR ISSUANCE OF FINAL REGULATION RELATING 
                   TO MEDICAID UPPER PAYMENT LIMITS.

       (a) In General.--Not later than December 31, 2000, the 
     Secretary of Health and Human Services (in this section 
     referred to as the ``Secretary''), notwithstanding any 
     requirement of the Administrative Procedures Act under 
     chapter 5 of title 5, United States Code, or any other 
     provision of law, shall issue under sections 447.272, 
     447.304, and 447.321 of title 42, Code of Federal Regulations 
     (and any other section of part 447 of title 42, Code of 
     Federal Regulations that the Secretary determines is 
     appropriate), a final regulation based on the proposed rule 
     announced on October 5, 2000, that--
       (1) modifies the upper payment limit test applied to State 
     medicaid spending for inpatient hospital services, outpatient 
     hospital services, nursing facility services, intermediate 
     care facility services for the mentally retarded, and clinic 
     services by applying an aggregate upper payment limit to 
     payments made to government facilities that are not State-
     owned or operated facilities; and
       (2) provides for a transition period in accordance with 
     subsection (b).
       (b) Transition Period.--
       (1) In general.--The final regulation required under 
     subsection (a) shall provide that, with respect to a State 
     described in paragraph (3), the State shall be considered to 
     be in compliance with the final regulation required under 
     subsection (a) so long as, for each State fiscal year during 
     the period described in paragraph (4), the State reduces 
     payments under a State medicaid plan payment provision or 
     methodology described in paragraph (3), or reduces the actual 
     dollar payment levels described in paragraph (3)(B), so that 
     the amount of the payments that would otherwise have been 
     made under such provision, methodology, or payment levels by 
     the State for any State fiscal year during such period is 
     reduced by 15 percent in the first such State fiscal year, 
     and by an additional 15 percent in each of next 5 State 
     fiscal years.
       (2) Requirement.--Notwithstanding paragraph (1), the final 
     regulation required under subsection (a) shall provide that, 
     for any period (or portion of a period) that occurs on or 
     after October 1, 2008, medicaid payments made by a State 
     described in paragraph (3) shall comply with such final 
     regulation.
       (3) State described.--A State described in this paragraph 
     is a State with a State medicaid plan payment provision or 
     methodology which--
       (A) was approved, deemed to have been approved, or was in 
     effect on or before October 1, 1992 (including any subsequent 
     amendments or successor provisions or methodologies and 
     whether or not a State plan amendment was made to carry out 
     such provision or methodology after such date) or under which 
     claims for Federal financial participation were filed and 
     paid on or before such date; and
       (B) provides for payments that are in excess of the upper 
     payment limit test established under the final regulation 
     required under subsection (a) (or which would be noncompliant 
     with such final regulation if the actual dollar payment 
     levels made under the payment provision or methodology in the 
     State fiscal year which begins during 1999 were continued).
       (4) Period described.--The period described in this 
     paragraph is the period that begins on the first State fiscal 
     year that begins after September 30, 2002, and ends on 
     September 30, 2008.

     SEC. 706. ALASKA FMAP.

       Notwithstanding the first sentence of section 1905(b) of 
     the Social Security Act (42 U.S.C. 1396d(b)), only with 
     respect to each of fiscal years 2001 through 2005, for 
     purposes of titles XIX and XXI of the Social Security Act, 
     the State percentage used to determine the Federal medical 
     assistance percentage for Alaska shall be that percentage 
     which bears the same ratio to 45 percent as the square of the 
     adjusted per capita income of Alaska (determined by dividing 
     the State's 3-year average per capita income by 1.05) bears 
     to the square of the per capita income of the 50 States.
         TITLE VIII--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

     SEC. 801. SPECIAL RULE FOR REDISTRIBUTION AND AVAILABILITY OF 
                   UNUSED FISCAL YEAR 1998 AND 1999 SCHIP 
                   ALLOTMENTS.

       (a) Change in Rules for Redistribution and Retention of 
     Unused SCHIP Allotments for Fiscal Years 1998 and 1999.--
     Section 2104 (42 U.S.C. 1397dd) is amended by adding at the 
     end the following new subsection:
       ``(g) Rule for Redistribution and Extended Availability of 
     Fiscal Years 1998 and 1999  Allotments.--
       ``(1) Amount redistributed.--
       ``(A) In general.--In the case of a State that expends all 
     of its allotment under subsection (b) or (c) for fiscal year 
     1998 by the end of fiscal year 2000, or for fiscal year 1999 
     by the end of fiscal year 2001, the Secretary shall 
     redistribute to the State under subsection (f) (from the 
     fiscal year 1998 or 1999 allotments of other States, 
     respectively, as determined by the application of paragraphs 
     (2) and (3) with respect to the respective fiscal year)) the 
     following amount:
       ``(i) State.--In the case of 1 of the 50 States or the 
     District of Columbia, with respect to--

       ``(I) the fiscal year 1998 allotment, the amount by which 
     the State's expenditures under this title in fiscal years 
     1998, 1999, and 2000 exceed the State's allotment for fiscal 
     year 1998 under subsection (b); or
       ``(II) the fiscal year 1999 allotment, the amount by which 
     the State's expenditures under this title in fiscal years 
     1999, 2000, and 2001 exceed the State's allotment for fiscal 
     year 1999 under subsection (b).

       ``(ii) Territory.--In the case of a commonwealth or 
     territory described in subsection (c)(3), an amount that 
     bears the same ratio to 1.05 percent of the total amount 
     described in paragraph (2)(B)(i)(I) as the ratio of the 
     commonwealth's or territory's fiscal year 1998 or 1999 
     allotment under subsection (c) (as the case may be) bears to 
     the total of all such allotments for such fiscal year under 
     such subsection.
       ``(B) Expenditure rules.--An amount redistributed to a 
     State under this paragraph with respect to fiscal year 1998 
     or 1999--
       ``(i) shall not be included in the determination of the 
     State's allotment for any fiscal year under this section;
       ``(ii) notwithstanding subsection (e), shall remain 
     available for expenditure by the State through the end of 
     fiscal year 2002; and
       ``(iii) shall be counted as being expended with respect to 
     a fiscal year allotment in accordance with applicable 
     regulations of the Secretary.
       ``(2) Extension of availability of portion of unexpended 
     fiscal years 1998 and 1999 allotments.--
       ``(A) In general.--Notwithstanding subsection (e):
       ``(i) Fiscal year 1998 allotment.--Of the amounts allotted 
     to a State pursuant to this section for fiscal year 1998 that 
     were not expended by the State by the end of fiscal year 
     2000, the amount specified in subparagraph (B) for fiscal 
     year 1998 for such State shall remain available for 
     expenditure by the State through the end of fiscal year 2002.
       ``(ii) Fiscal year 1999 allotment.--Of the amounts allotted 
     to a State pursuant to this subsection for fiscal year 1999 
     that were not expended by the State by the end of fiscal year 
     2001, the amount specified in subparagraph (B) for fiscal 
     year 1999 for such State shall remain available for 
     expenditure by the State through the end of fiscal year 2002.
       ``(B) Amount remaining available for expenditure.--The 
     amount specified in this subparagraph for a State for a 
     fiscal year is equal to--
       ``(i) the amount by which (I) the total amount available 
     for redistribution under subsection (f) from the allotments 
     for that fiscal year, exceeds (II) the total amounts 
     redistributed under paragraph (1) for that fiscal year; 
     multiplied by
       ``(ii) the ratio of the amount of such State's unexpended 
     allotment for that fiscal year to the total amount described 
     in clause (i)(I) for that fiscal year.
       ``(C) Use of up to 10 percent of retained 1998 allotments 
     for outreach activities.--Notwithstanding section 
     2105(c)(2)(A), with respect to any State described in 
     subparagraph (A)(i), the State may use up to 10 percent of 
     the amount specified in subparagraph (B) for fiscal year 1998 
     for expenditures for outreach activities approved by the 
     Secretary.
       ``(3) Determination of amounts.--For purposes of 
     calculating the amounts described in paragraphs (1) and (2) 
     relating to the allotment for fiscal year 1998 or fiscal year 
     1999, the Secretary shall use the amounts reported by the 
     States not later than November 30, 2000, or November 30, 
     2001, respectively, on HCFA Form 64 or HCFA Form 21, as 
     approved by the Secretary.''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect as if included in

[[Page H11053]]

     the enactment of section 4901 of BBA (111 Stat. 552).

     SEC. 802. AUTHORITY TO PAY MEDICAID EXPANSION SCHIP COSTS 
                   FROM TITLE XXI APPROPRIATION.

       (a) Authority To Pay Medicaid Expansion SCHIP Costs From 
     Title XXI Appropriation.--Section 2105(a) (42 U.S.C. 
     1397ee(a)) is amended--
       (1) by redesignating subparagraphs (A) through (D) of 
     paragraph (2) as clauses (i) through (iv), respectively, and 
     indenting appropriately;
       (2) by redesignating paragraph (1) as subparagraph (C), and 
     indenting appropriately;
       (3) by redesignating paragraph (2) as subparagraph (D), and 
     indenting appropriately;
       (4) by striking ``(a) In General.--'' and the remainder of 
     the text that precedes subparagraph (C), as so redesignated, 
     and inserting the following:
       ``(a) Payments.--
       ``(1) In general.--Subject to the succeeding provisions of 
     this section, the Secretary shall pay to each State with a 
     plan approved under this title, from its allotment under 
     section 2104, an amount for each quarter equal to the 
     enhanced FMAP (or, in the case of expenditures described in 
     subparagraph (B), the Federal medical assistance percentage 
     (as defined in the first sentence of section 1905(b))) of 
     expenditures in the quarter--
       ``(A) for child health assistance under the plan for 
     targeted low-income children in the form of providing medical 
     assistance for which payment is made on the basis of an 
     enhanced FMAP under the fourth sentence of section 1905(b);
       ``(B) for the provision of medical assistance on behalf of 
     a child during a presumptive eligibility period under section 
     1920A;''; and
       (5) by adding after subparagraph (D), as so redesignated, 
     the following new paragraph:
       ``(2) Order of payments.--Payments under paragraph (1) from 
     a State's allotment shall be made in the following order:
       ``(A) First, for expenditures for items described in 
     paragraph (1)(A).
       ``(B) Second, for expenditures for items described in 
     paragraph (1)(B).
       ``(C) Third, for expenditures for items described in 
     paragraph (1)(C).
       ``(D) Fourth, for expenditures for items described in 
     paragraph (1)(D).''.
       (b) Elimination of Requirement To Reduce Title XXI 
     Allotment by Medicaid Expansion SCHIP Costs.--Section 2104 
     (42 U.S.C. 1397dd) is amended by striking subsection (d).
       (c) Authority To Transfer Title XXI Appropriations to Title 
     XIX Appropriation Account as Reimbursement for Medicaid 
     Expenditures for Medicaid Expansion SCHIP Services.--
     Notwithstanding any other provision of law, all amounts 
     appropriated under title XXI and allotted to a State pursuant 
     to subsection (b) or (c) of section 2104 of the Social 
     Security Act (42 U.S.C. 1397dd) for fiscal years 1998 through 
     2000 (including any amounts that, but for this provision, 
     would be considered to have expired) and not expended in 
     providing child health assistance or related services for 
     which payment may be made pursuant to subparagraph (C) or (D) 
     of section 2105(a)(1) of such Act (42 U.S.C. 1397ee(a)(1)) 
     (as amended by subsection (a)), shall be available to 
     reimburse the Grants to States for Medicaid account in an 
     amount equal to the total payments made to such State under 
     section 1903(a) of such Act (42 U.S.C. 1396b(a)) for 
     expenditures in such years for medical assistance described 
     in subparagraphs (A) and (B) of section 2105(a)(1) of such 
     Act (42 U.S.C. 1397ee(a)(1) (as so amended).
       (d) Conforming Amendments.--
       (1) Section 1905(b) (42 U.S.C. 1396d(b)) is amended in the 
     fourth sentence by striking ``the State's allotment under 
     section 2104 (not taking into account reductions under 
     section 2104(d)(2)) for the fiscal year reduced by the amount 
     of any payments made under section 2105 to the State from 
     such allotment for such fiscal year'' and inserting ``the 
     State's available allotment under section 2104''.
       (2) Section 1905(u)(1)(B) (42 U.S.C. 1396d(u)(1)(B)) is 
     amended by striking ``and section 2104(d)''.
       (3) Section 2104 (42 U.S.C. 1397dd), as amended by 
     subsection (b), is further amended--
       (A) in subsection (b)(1), by striking ``and subsection 
     (d)''; and
       (B) in subsection (c)(1), by striking ``subject to 
     subsection (d),''.
       (4) Section 2105(c) (42 U.S.C. 1397ee(c)) is amended--
       (A) in paragraph (2)(A), by striking all that follows 
     ``Except as provided in this paragraph,'' and inserting ``the 
     amount of payment that may be made under subsection (a) for a 
     fiscal year for expenditures for items described in paragraph 
     (1)(D) of such subsection shall not exceed 10 percent of the 
     total amount of expenditures for which payment is made under 
     subparagraphs (A), (C), and (D) of paragraph (1) of such 
     subsection.'';
       (B) in paragraph (2)(B), by striking ``described in 
     subsection (a)(2)'' and inserting ``described in subsection 
     (a)(1)(D)''; and
       (C) in paragraph (6)(B), by striking ``Except as otherwise 
     provided by law,'' and inserting ``Except as provided in 
     subparagraph (A) or (B) of subsection (a)(1) or any other 
     provision of law,''.
       (5) Section 2110(a) (42 U.S.C. 1397jj(a)) is amended by 
     striking ``section 2105(a)(2)(A)'' and inserting ``section 
     2105(a)(1)(D)(i)''.
       (e) Technical Amendment.--Section 2105(d)(2)(B)(ii) (42 
     U.S.C. 1397ee(d)(2)(B)(ii)) is amended by striking ``enhanced 
     FMAP under section 1905(u)'' and inserting ``enhanced FMAP 
     under the fourth sentence of section 1905(b)''.
       (f) Effective Date.--The amendments made by this section 
     shall be effective as if included in the enactment of section 
     4901 of the BBA (111 Stat. 552).
                       TITLE IX--OTHER PROVISIONS
                        Subtitle A--PACE Program

     SEC. 901. EXTENSION OF TRANSITION FOR CURRENT WAIVERS.

       Section 4803(d)(2) of BBA is amended--
       (1) in subparagraph (A), by striking ``24 months'' and 
     inserting ``36 months'';
       (2) in subparagraph (A), by striking ``the initial 
     effective date of regulations described in subsection (a)'' 
     and inserting ``July 1, 2000''; and
       (3) in subparagraph (B), by striking ``3 years'' and 
     inserting ``4 years''.

     SEC. 902. CONTINUING OF CERTAIN OPERATING ARRANGEMENTS 
                   PERMITTED.

       (a) In General.--Section 1894(f)(2) (42 U.S.C. 
     1395eee(f)(2)) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Continuation of modifications or waivers of 
     operational requirements under demonstration status.--If a 
     PACE program operating under demonstration authority has 
     contractual or other operating arrangements which are not 
     otherwise recognized in regulation and which were in effect 
     on July 1, 2000, the Secretary (in close consultation with, 
     and with the concurrence of, the State administering agency) 
     shall permit any such program to continue such arrangements 
     so long as such arrangements are found by the Secretary and 
     the State to be reasonably consistent with the objectives of 
     the PACE program.''.
       (b) Conforming Amendment.--Section 1934(f)(2) (42 U.S.C. 
     1396u-4(f)(2)) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Continuation of modifications or waivers of 
     operational requirements under demonstration status.--If a 
     PACE program operating under demonstration authority has 
     contractual or other operating arrangements which are not 
     otherwise recognized in regulation and which were in effect 
     on July 1 2000, the Secretary (in close consultation with, 
     and with the concurrence of, the State administering agency) 
     shall permit any such program to continue such arrangements 
     so long as such arrangements are found by the Secretary and 
     the State to be reasonably consistent with the objectives of 
     the PACE program.''.
       (c) Effective Date.--The amendments made by this section 
     shall be effective as included in the enactment of BBA.

     SEC. 903. FLEXIBILITY IN EXERCISING WAIVER AUTHORITY.

       In applying sections 1894(f)(2)(B) and 1934(f)(2)(B) of the 
     Social Security Act (42 U.S.C. 1395eee(f)(2)(B), 1396u-
     4(f)(2)(B)), the Secretary of Health and Human Services--
       (1) shall approve or deny a request for a modification or a 
     waiver of provisions of the PACE protocol not later than 90 
     days after the date the Secretary receives the request; and
       (2) may exercise authority to modify or waive such 
     provisions in a manner that responds promptly to the needs of 
     PACE programs relating to areas of employment and the use of 
     community-based primary care physicians.
   Subtitle B--Outreach to Eligible Low-Income Medicare Beneficiaries

     SEC. 911. OUTREACH ON AVAILABILITY OF MEDICARE COST-SHARING 
                   ASSISTANCE TO ELIGIBLE LOW-INCOME MEDICARE 
                   BENEFICIARIES.

       (a) Outreach.--
       (1) In general.--Title XI (42 U.S.C. 1301 et seq.) is 
     amended by inserting after section 1143 the following new 
     section:


    ``outreach efforts to increase awareness of the availability of 
                         medicare cost-sharing

       ``Sec. 1144. (a) Outreach.--
       ``(1) In general.--The Commissioner of Social Security (in 
     this section referred to as the `Commissioner') shall conduct 
     outreach efforts to--
       ``(A) identify individuals entitled to benefits under the 
     medicare program under title XVIII who may be eligible for 
     medical assistance for payment of the cost of medicare cost-
     sharing under the medicaid program pursuant to sections 
     1902(a)(10)(E) and 1933; and
       ``(B) notify such individuals of the availability of such 
     medical assistance under such sections.
       ``(2) Content of notice.--Any notice furnished under 
     paragraph (1) shall state that eligibility for medicare cost-
     sharing assistance under such sections is conditioned upon--
       ``(A) the individual providing to the State information 
     about income and resources (in the case of an individual 
     residing in a State that imposes an assets test for such 
     eligibility); and
       ``(B) meeting the applicable eligibility criteria.
       ``(b) Coordination With States.--
       ``(1) In general.--In conducting the outreach efforts under 
     this section, the Commissioner shall--
       ``(A) furnish the agency of each State responsible for the 
     administration of the medicaid program and any other 
     appropriate State agency with information consisting of the 
     name and address of individuals residing in the State that 
     the Commissioner determines may be eligible for medical 
     assistance for payment of the cost of medicare cost-sharing 
     under the medicaid program pursuant to sections 
     1902(a)(10)(E) and 1933; and
       ``(B) update any such information not less frequently than 
     once per year.
       ``(2) Information in periodic updates.--The periodic 
     updates described in paragraph (1)(B) shall include 
     information on individuals who are or may be eligible for the 
     medical assistance described in paragraph (1)(A) because such 
     individuals have experienced reductions in benefits under 
     title II.''.
       (2) Amendment to title xix.--Section 1905(p) (42 U.S.C. 
     1396d(p)) is amended by adding at the end the following new 
     paragraph:

[[Page H11054]]

       ``(5) For provisions relating to outreach efforts to 
     increase awareness of the availability of medicare cost-
     sharing, see section 1144.''.
       (b) GAO Report.--The Comptroller General of the United 
     States shall conduct a study of the impact of section 1144 of 
     the Social Security Act (as added by subsection (a)(1)) on 
     the enrollment of individuals for medicare cost-sharing under 
     the medicaid program. Not later than 18 months after the date 
     that the Commissioner of Social Security first conducts 
     outreach under section 1144 of such Act, the Comptroller 
     General shall submit to Congress a report on such study. The 
     report shall include such recommendations for legislative 
     changes as the Comptroller General deems appropriate.
       (c) Effective Date.--The amendments made by subsections (a) 
     shall take effect one year after the date of the enactment of 
     this Act.
           Subtitle C--Maternal and Child Health Block Grant

      SEC. 921. INCREASE IN AUTHORIZATION OF APPROPRIATIONS FOR 
                   THE MATERNAL AND CHILD HEALTH SERVICES BLOCK 
                   GRANT.

       (a) In General.--Section 501(a) (42 U.S.C. 701(a)) is 
     amended in the matter preceding paragraph (1) by striking 
     ``$705,000,000 for fiscal year 1994'' and inserting 
     ``$850,000,000 for fiscal year 2001''.
       (b) Effective Date.--The amendment made by subsection (a) 
     takes effect on October 1, 2000.
                          Subtitle D--Diabetes

     SEC. 931. INCREASE IN APPROPRIATIONS FOR SPECIAL DIABETES 
                   PROGRAMS FOR TYPE I DIABETES AND INDIANS.

       (a) Special Diabetes Programs for Type I Diabetes.--Section 
     330B(b) of the Public Health Service Act (42 U.S.C. 254c-
     2(b)) is amended--
       (1) by striking ``Notwithstanding'' and inserting the 
     following:
       ``(1) Transferred funds.--Notwithstanding''; and
       (2) by adding at the end the following:
       ``(2) Appropriations.--For the purpose of making grants 
     under this section, there is appropriated, out of any funds 
     in the Treasury not otherwise appropriated--
       ``(A) $70,000,000 for each of fiscal years 2001 and 2002 
     (which shall be combined with amounts transferred under 
     paragraph (1) for each such fiscal years); and
       ``(B) $100,000,000 for fiscal year 2003.''.
       (b) Special Diabetes Programs for Indians.--Section 330C(c) 
     of such Act (42 U.S.C. 254c-3(c)) is amended--
       (1) by striking ``Notwithstanding'' and inserting the 
     following:
       ``(1) Transferred funds.--Notwithstanding''; and
       (2) by adding at the end the following:
       ``(2) Appropriations.--For the purpose of making grants 
     under this section, there is appropriated, out of any money 
     in the Treasury not otherwise appropriated--
       ``(A) $70,000,000 for each of fiscal years 2001 and 2002 
     (which shall be combined with amounts transferred under 
     paragraph (1) for each such fiscal years); and
       ``(B) $100,000,000 for fiscal year 2003.''.
       (c) Extension of Final Report on Grant Programs.--Section 
     4923(b)(2) of BBA is amended by striking ``2002'' and 
     inserting ``2003''.

     SEC. 932. APPROPRIATIONS FOR RICKY RAY HEMOPHILIA RELIEF 
                   FUND.

       Section 101(e) of the Ricky Ray Hemophilia Relief Fund Act 
     of 1998 (42 U.S.C. 300c-22 note) is amended by adding at the 
     end the following: ``There is appropriated to the Fund 
     $475,000,000 for fiscal year 2001, to remain available until 
     expended.''.
       Following is explanatory language for H.R. 5543 as 
     introduced on October 25, 2000.

 STATEMENT OF MANAGERS FOR THE MEDICARE, MEDICAID, AND SCHIP BENEFITS 
                 IMPROVEMENT AND PROTECTION ACT OF 2000

               Title I--Medicare Beneficiary Improvements

                Subtilte A--Improved Preventive Benefits

     Section 101. Coverage of biennial screening pap smear and 
         pelvic exams
       The provision modifies current law to provide Medicare 
     coverage for biennial screening pap smears and pelvic exams, 
     effective July 1, 2001.
     Section 102. Coverage of screening for glaucoma
       The provision would add Medicare coverage for annual 
     glaucoma screenings, beginning January 1, 2002, for persons 
     determined to be at high risk for glaucoma, individuals with 
     a family history of glaucoma, and individuals with diabetes. 
     The service would have to be furnished by or under the 
     supervision of an optometrist or ophthalmologist who is 
     legally authorized to perform such services in the state 
     where the services are furnished.
     Section 103. Coverage of screening colonoscopy for average 
         risk individuals
       The provision would authorize coverage for screening 
     colonoscopies, beginning July 1, 2001, for all individuals, 
     not just those at high risk. For persons not at high risk, 
     payments could not be made for such procedures if performed 
     within 10 years of a previous screening colonoscopy or within 
     4 years of a screening flexible sigmoidoscopy.
     Section 104. Modernization of screening mammography benefit
       Beginning in 2002, the provision would eliminate the 
     statutorily prescribed payment rate for mammography payments 
     and specify that the services are to be paid under the 
     physician fee schedule. The provision would specify two new 
     payment rates for mammographies that utilize advanced new 
     technology for the period April 1, 2001 to December 21, 2001. 
     Payment for technologies that directly take digital images 
     would equal 150% of what would otherwise be paid for a 
     bilateral diagnostic mammography. For technologies that 
     convert standard film images to digital form, an additional 
     payment of fifteen dollars would be authorized. The Secretary 
     would be required to determine whether a new code is required 
     for tests furnished after 2001.
     Section 105. Coverage of medical nutrition therapy services 
         for beneficiaries with diabetes or a renal disease
       The provision would establish, effective January 1, 2002, 
     Medicare coverage for medical nutrition therapy services for 
     beneficiaries who have diabetes or a renal disease. Medical 
     nutrition therapy services would be defined as nutritional 
     diagnostic, therapy and counseling services for the purpose 
     of disease management which are furnished by a registered 
     dietician or nutrition professional, pursuant to a referral 
     by a physician. The provision would specify that the amount 
     paid for medical nutrition therapy services would equal the 
     lesser of the actual charge for the service or 85% of the 
     amount that would be paid under the physician fee schedule if 
     such services were provided by a physician. Assignment would 
     be required for all claims. The Secretary would be required 
     to submit a report to Congress that contains an evaluation of 
     the effectiveness of services furnished under this provision.

               Subtitle B--Other Beneficiary Improvements

     Section 111. Acceleration of reduction of beneficiary 
         copayment for hospital outpatient hospital outpatient 
         department services
       Effective January 1, 2001, the provision would modify 
     current law by limiting the amount of a beneficiary's 
     copayment for a procedure in a hospital outpatient department 
     to the hospital inpatient deductible applicable in that year.
       In addition, starting in January, 2001, the provision would 
     require the Secretary of HHS to reduce the effective 
     copayment rate for outpatient services to a maximum rate of 
     60% and then gradually reduce the effective coinsurance rate 
     in 5 percentage point intervals from 2002 through 2006 until 
     the maximum rate is 40% in 2006. As stated in BBA 97, 
     hospitals may waive any increase in coinsurance that may have 
     arisen from the implementation of the outpatient prospective 
     payment system (PPS).
       The Comptroller General would be required to work with the 
     National Association of Insurance Commissioners (NAIC) to 
     evaluate the extent to which premiums for supplemental 
     policies reflect the acceleration of the reduction in 
     beneficiary coinsurance for hospital outpatient services and 
     result in savings to beneficiaries and to report to the 
     Congress by April 1, 2004.
     Section 112. Preservation of coverage of drugs and 
         biologicals under part B of the medicare program
       The provision would clarify policy with regard to coverage 
     of drugs, provided incident to physicians services, that 
     cannot be self-administered. The provision would specify that 
     such drugs are covered when they are not usually self-
     administered by the patient.
     Section 113. Elimination of time limitation on Medicare 
         benefits for immunosuppressive drugs
       The provision would eliminate the current time limitations 
     on the coverage of immunosuppressive drugs for beneficiaries 
     who have received a covered organ transplant. The provision 
     would apply to drugs furnished, on or after the date 
     enactment.
     Section 114. Imposition of balanced billing limits on 
         prescription drugs
       The provision would specify that payment for drugs under 
     Part B must be made on the basis of assignment.

             Subtitle C--Demonstration Projects and Studies

     Section 121. Demonstration project for disease management for 
         severely chronically ill Medicare beneficiaries
       The Secretary would be required to conduct a demonstration 
     project to illustrate the impact on costs and health outcomes 
     of applying disease management to Medicare beneficiaries with 
     diagnosed, advanced-stage congestive heart failure, diabetes, 
     or coronary heart disease. Up to 30,000 beneficiaries would 
     be able to enroll, on a voluntary basis, for disease 
     management services related to their chronic health 
     condition. In addition, contractors providing disease 
     management services would be responsible for providing 
     beneficiaries enrolled in the project with prescription 
     drugs.
     Section 122. Cancer prevention and treatment demonstration 
         for ethnic and racial minorities
       The provision would require the Secretary to conduct 
     demonstration projects for the purpose of developing models 
     and evaluating methods that improve the quality of cancer 
     prevention services, improve clinical outcomes, eliminate 
     disparities in the rate of preventive screening measures, and 
     promote collaboration with community-based organizations for 
     ethnic and racial minorities.
     Section 123. Study on Medicare coverage of routine thyroid 
         screening
       The provision would require the Secretary to request the 
     National Academy of Sciences, and as appropriate in 
     conjunction

[[Page H11055]]

     with the United States Preventive Services Task Force, to 
     analyze the addition of routine thyroid screening under 
     Medicare. The analysis would consider the short term and long 
     term benefits, and cost to Medicare, of adding such coverage 
     for some or all beneficiaries.
     Section 124. MedPAC study on consumer coalitions
       The provision would require MedPAC to conduct a study that 
     examines the use of consumer coalitions in the marketing of 
     Medicare+Choice plans. A consumer coalition would be defined 
     as a non-profit community-based organization that provides 
     information to beneficiaries about their health options under 
     Medicare and negotiates with Medicare+Choice plans on 
     benefits and premiums for beneficiaries who are members of 
     the coalition or otherwise affiliated with it.
     Section 125. Study on limitation on state payment for 
         medicare cost-sharing affecting access to services for 
         qualified medicare beneficiaries
       The provision would require the Secretary of HHS to conduct 
     a study to determine if access to certain services (including 
     mental health services) has been affected by a specific 
     provision in law. That provision specifies that states are 
     not required to pay Medicare cost-sharing charges for QMBs to 
     the extent these payments would result in a total payment in 
     excess of the Medicaid level.
     Section 126. Institute of Medicine study on waiver of 24-
         month waiting period for Medicare disability eligibility 
         for amyotrophic lateral sclerosis (ALS) and other 
         devastating diseases
       The provision would provide for an Institute of Medicine 
     study that examines the appropriateness of waiving the 24-
     month waiting period for Medicare disability eligibility for 
     an individual medically determined to have amyotrophic 
     lateral sclerosis (ALS) or an other disease that is as 
     rapidly debilitating.
     Section 127. Studies on preventive interventions in primary 
         care for older Americans
       The provision would require the Secretary, acting through 
     the United States Preventive Services Task Force, to conduct 
     a series of studies designed to identify preventive 
     interventions in primary care for older Americans.
     Section 128. MedPAC study and report on Medicare coverage of 
         cardiac and pulmonary rehabilitation and therapy services
       The provision would require MedPAC to conduct a study on 
     coverage of cardiac and pulmonary rehabilitation therapy 
     services under Medicare.

                Title II--Rural Health Care Improvements

            Subtitle A--Critical Access Hospital Provisions

     Section 201. Clarification of no beneficiary cost-sharing for 
         clinical diagnostic laboratory tests furnished by 
         critical access hospitals
       Effective for services furnished on or after the enactment 
     of BBRA99, Medicare beneficiaries would not be liable for any 
     coinsurance, deductible, copayment, or other cost sharing 
     amount with respect to clinical diagnostic laboratory 
     services furnished as an outpatient critical access hospital 
     (CAH) service. Conforming changes that clarify that CAHs are 
     reimbursed on a reasonable cost basis for outpatient clinical 
     diagnostic laboratory services are also included.
     Section 202. Assistance with fee schedule payment for 
         professional services under all-inclusive rate
       Effective for items and services furnished on or after 
     April 1, 2001, Medicare would pay a CAH for outpatient 
     services based on reasonable costs or, at the election of an 
     entity, would pay the CAH a facility fee based on reasonable 
     costs plus an amount based on 115% of Medicare's fee schedule 
     for professional services.
     Section 203. Exemption of critical access hospital swing beds 
         from SNF PPS
       Swing beds in critical access hospitals (CAHs) would be 
     exempt from the SNF prospective payment system. CAHs would be 
     paid for covered SNF services on a reasonable cost basis.
     Section 204. Payment in critical access hospitals for 
         emergency room on-call physicians
       When determining the allowable, reasonable cost of 
     outpatient CAH services, the Secretary would recognize 
     amounts for the compensation and related costs for on-call 
     emergency room physicians who are not present on the 
     premises, are not otherwise furnishing services, and are not 
     on-call at any other provider or facility. The Secretary 
     would define the reasonable payment amounts and the meaning 
     of the term ``on-call.'' The provision would be effective for 
     cost reporting periods beginning on or after October 1, 2001.
     Section 205. Treatment of ambulance services furnished by 
         certain critical access hospitals
       Ambulance services provided by a critical access hospital 
     (CAH) or provided by an entity that is owned or operated by a 
     CAH would be paid on a reasonable cost basis if the CAH or 
     entity is the only provider or supplier of ambulance services 
     that is located within a 35-mile drive of the CAH. The 
     provision would be effective for cost reporting periods 
     beginning on or after implementation of the fee schedule.
     Section 206. GAO study on certain eligibility requirements 
         for critical access hospitals
       Within one year of enactment, GAO would be required to 
     conduct a study on the eligibility requirements for critical 
     access hospitals (CAHs) with respect to limitations on 
     average length of stay and number of beds, including an 
     analysis of the feasibility of having a distinct part unit as 
     part of a CAH and the effect of seasonal variations in CAH 
     eligibility requirements. GAO also would be required to 
     analyze the effect of seasonal variations in patient 
     admissions on critical access hospital eligibility 
     requirements with respect to limits on average annual length 
     of stay and number of beds.

              Subtitle B--Other Rural Hospitals Provisions

     Section 211. Equitable treatment for rural disproportionate 
         share hospitals
       For discharges occurring on or after April 1, 2001, all 
     hospitals would be eligible to receive DSH payments when 
     their DSH percentage (threshold amount) exceeds 15%. The DSH 
     payment formulas for sole community hospitals (SCHs), rural 
     referral centers (RRCs), rural hospitals that are both SCHs 
     and RRCs, small rural hospitals and urban hospitals with less 
     than 100 beds would be modified.
     Section 212. Option to base eligibility for Medicare 
         dependent, small rural hospital program on discharges 
         during 2 of the 3 most recent audited cost reporting 
         periods
       An otherwise qualifying small rural hospital would be able 
     to be classified as an MDH if at least 60% of its days or 
     discharges were attributable to Medicare Part A beneficiaries 
     in at least two of the three most recent audited cost 
     reporting periods for which the Secretary has a settled cost 
     report.
     Section 213. Extension of option to use rebased target 
         amounts to all sole community hospitals
       Any SCH would be able to elect payment based on hospital 
     specific, updated FY1996 costs if this target amount resulted 
     in higher Medicare payments. There would be a transition 
     period with Medicare payment based completely on updated 
     FY1996 hospital specific costs for discharges occurring after 
     FY2003.
     Section 214. MedPAC analysis of impact of volume on per unit 
         cost of rural hospitals with psychiatric units
       MedPAC would be required to report on the impact of volume 
     on the per unit cost of rural hospitals with psychiatric 
     units and include in its report a recommendation on whether 
     special treatment is warranted.

                   Subtitle C--Other Rural Provisions

     Section 221. Assistance for providers of ambulance services 
         in rural areas
       The provision would make additional payments to providers 
     of ground ambulance services for trips, originating in rural 
     areas, that are greater than 17 miles and up to 50 miles. The 
     payments would be made for services furnished on or after 
     implementation of the fee schedule and before January 1, 
     2004. The provision would require the Comptroller General to 
     conduct a study to examine both the costs of efficiently 
     providing ambulance services for trips originating in rural 
     areas and the means by which rural areas with low population 
     densities can be identified for the purpose of designating 
     areas in which the costs of ambulance services would be 
     expected to be higher. The Comptroller General would submit a 
     report to Congress by June 30, 2002 on the results of the 
     study, together with recommendations on steps that should be 
     taken to assure access to ambulance services for trips 
     originating in rural areas. The Secretary would be required 
     to take these findings into account when establishing the fee 
     schedule, beginning with 2004.
     Section 222. Payment for certain physician assistant services
       This provision would give permanent authority to physician 
     assistants who owned rural health clinics that lost their 
     designation as such to bill Medicare directly.
     Section 223. Expansion of Medicare payment for telehealth 
         services
       The provision would establish revised payment provisions, 
     effective no later than July 1, 2001, for services that are 
     provided via a telecommunications system by a physician or 
     practitioner to an eligible beneficiary in a rural area. The 
     Secretary would be required to make payments for telehealth 
     services to the physician or practitioner at the distant site 
     in an amount equal to the amount that would have been paid to 
     such physician or practitioner if the service had been 
     furnished to the beneficiary without the use of a 
     telecommunications system. A facility fee would be paid to 
     the originating site. Originating sites would include a 
     physician or practitioner office, a critical access hospital, 
     a rural health clinic, a Federally qualified health center or 
     a hospital. The Secretary would be required to conduct a 
     study, and submit recommendations to Congress, that identify 
     additional settings, sites, practitioners and geographic 
     areas that would be appropriate for telehealth services. 
     Entities participating in Federal demonstration projects 
     approved by, or receiving funding from, the Secretary as of 
     December 31, 2000 would be qualified sites.
     Section 224. Expanding Access to rural health clinics
       All hospitals of less than 50 beds that own rural health 
     clinics would be exempt from the per visit limit.
     Section 225. MedPAC study on low-volume, isolated rural 
         health providers
       MedPAC would be required to study the effect of low patient 
     and procedure volume on

[[Page H11056]]

     the financial status and Medicare payment methods for 
     hospital outpatient services, ambulance services, hospital 
     inpatient services, skilled nursing facility services, and 
     home health services in isolated rural health care providers.

                Title III--Provisions Relating to Part A

                Subtitle A--Inpatient Hospital Services

     Section 301. Revision of acute care hospital payment update 
         for 2001
       All hospitals would receive the full market basket index 
     (MBI) as an update for FY2001. In order to implement this 
     increase for hospitals other than sole community hospitals 
     (SCH), those hospitals would receive the MBI minus 1.1 
     percentage points (the current statutory provision) for 
     discharges occurring on or after October 1, 2000 and before 
     April 1 2001; these non-SCH hospitals would receive the MBI 
     plus 1.1 percentage points for discharges occurring on or 
     after April 1, 2001 and before October 1, 2001. For FY2002 
     and FY2003, hospitals would receive the MBI minus .55 
     percentage points. For FY2004 and subsequently, hospitals 
     would receive the MBI.
       The Secretary is directed to consider the prices of blood 
     and blood products purchased by hospitals in the next 
     rebasing and revision of the hospital market basket to 
     determine whether those prices are adequately reflected in 
     the market basket index. MedPAC is directed to conduct a 
     study on increased hospital costs attributable to complying 
     with new blood safety measures and providing such services 
     using new technologies among other issues.
       For discharges occurring on or after October 1, 2001, the 
     Secretary would be able to adjust the standardized amount in 
     future fiscal years to correct for changes in the aggregate 
     Medicare payments caused by adjustments to the DRG weighting 
     factors in a previous fiscal year (or estimates that such 
     adjustments for a future fiscal year) that did not take into 
     account coding improvements or changes in discharge 
     classifications and did not accurately represent increases in 
     the resource intensity of patients treated by PPS hospitals.
     Section 302. Additional modification in transition for 
         indirect medical education (IME) percentage adjustment
       Teaching hospitals would receive 6.25% IME payment 
     adjustment (for each 10% increase in teaching intensity) for 
     discharges occurring on or after October 1, 2000 and before 
     April 1, 2001. The IME adjustment would increase to 6.75% for 
     discharges on or after April 1, 2001 and before October 1, 
     2001, for an average of 6.5% for FY2001. The IME adjustment 
     would be 6.375% in FY2002 and 5.5% in FY2003 and in 
     subsequent years.
     Section 303. Decrease in reductions for disproportionate 
         share hospital (DSH) payments
       Reductions in the DSH payment formula amounts would be 2% 
     in FY2001, 3% in FY2002, and 0% in FY2003 and subsequently. 
     To implement the FY2001 provision, DSH amounts for discharges 
     occurring on or after October 1, 2000 and before April 1, 
     2001, would be reduced by 3% which was the reduction in 
     effect prior to enactment of this provision. DSH amounts for 
     discharges occurring on or after April 1, 2001 and before 
     October 1, 2001 would be reduced by only 1 percentage point.
     Section 304. Wage index improvements
       For FY2001 or any fiscal year thereafter, a Medicare 
     Geographic Classification Review Board (MGCRB) decision to 
     reclassify a prospective payment system hospital for use of a 
     different area's wage index would be effective for 3 fiscal 
     years. The Secretary would establish procedures whereby a 
     hospital could elect to terminate this reclassification 
     decision before the end of such period. For FY2003 and 
     subsequently, MGCRB would base any comparison of the average 
     hourly wage of the hospital with the average hourly wage for 
     hospitals in the area using data from each of the two 
     immediately preceding surveys as well as data from the most 
     recently published hospital wage survey.
       The Secretary would establish a process which would first 
     be available for discharges occurring on or after October 1, 
     2001 where a single wage index would be computed for all 
     geographic areas in the state. If the Secretary applies a 
     statewide geographic index, an application by an individual 
     hospital would not be considered. The Secretary would also 
     collect occupational data every three years in order to 
     construct an occupational mix adjustment for the hospital 
     area wage index. The first complete data collection effort 
     would occur no later than September 30, 2003 for application 
     beginning October 1, 2004.
     Section 305. Payment for inpatient services in rehabilitation 
         hospitals
       Total payments for rehabilitation hospitals in FY2002 would 
     equal the amounts of payments that would have been made if 
     the rehabilitation prospective payment system (PPS) had not 
     been enacted. A rehabilitation facility would be able to make 
     a one-time election before the start of the PPS to be paid 
     based on a fully phased-in PPS rate.
     Section 306. Payment for inpatient services of psychiatric 
         hospitals
       The provision would increase the incentive payments for 
     psychiatric hospitals and distinct part units to 3% for cost 
     reporting periods beginning on or after October 1, 2000.
     Section 307. Payment for inpatient services of long-term care 
         hospitals
       For cost reporting periods beginning during FY 2001, long 
     term hospitals would have the national cap increased by 2% 
     and the target amount increased by 25%. Neither these 
     payments nor the increased bonus payments provided by BBRA 99 
     would be factored into the development of the prospective 
     payment system (PPS) for long term hospitals. When developing 
     the PPS for inpatient long term hospitals, the Secretary 
     would be required to examine the feasibility and impact of 
     basing payment on the existing (or refined) acute hospital 
     DRGs and using the most recently available hospital discharge 
     data. If the Secretary is unable to implement a long term 
     hospital PPS by October 1, 2002, the Secretary would be 
     required to implement a PPS for these hospitals using the 
     existing acute hospital DRGs that have been modified where 
     feasible.

 Subtitle B--Adjustments to PPS Payments for Skilled Nursing Facilities

     Section 311. Elimination of reduction in skilled nursing 
         facility (SNF) market basket update in 2001
       The provision would modify the schedule and rates according 
     to which federal per diem payments are updated. In FY 2002 
     and FY 2003 the updates would be the market basket index 
     increase minus 0.5 percentage point. The update rate for the 
     period October 1, 2000, through March 31, 2001, would be the 
     market basket index increase minus 1 percentage point; the 
     update rate for the period April 1, 2001, through September 
     30, 2001, would be the market basket index increase plus one 
     percentage point. Temporary increases in the federal per diem 
     rates provided by BBRA 99 would be in addition to the 
     increases in this provision. By July 1, 2002, the Comptroller 
     General would be required to submit a report to Congress on 
     the adequacy of Medicare payments to SNFs, taking into 
     account the role of private payers, medicaid, and case mix on 
     the financial performance of SNFs and including an analysis, 
     by RUG classification, of the number and characteristics of 
     such facilities. By January 1, 2005, the Secretary would be 
     required to submit a report to Congress on alternatives for 
     classification of SNF patients.
     Section 312. Increase in nursing component of PPS federal 
         rate
       The provision would increase the nursing component of each 
     RUG by 16.66 percent over current law for SNF care furnished 
     after April 1, 2001, and before October 1, 2002. Skilled 
     nursing facilities would be required to post nurse staffing 
     information daily for each shift in the facility.
       The Comptroller General would be required to conduct an 
     audit of nurse staffing ratios in a sample of SNFs and to 
     report to Congress by August 1, 2002, on the results of the 
     audit of nurse staffing ratios and recommend whether the 
     additional 16.66 percent payment should be continued.
     Section 313. Application of SNF consolidated billing 
         requirement limited to part A covered stays
       Effective January 1, 2001, the provision would limit the 
     current law consolidated billing requirement to services and 
     items furnished to SNF residents in a Medicare part A covered 
     stay and to therapy services furnished in part A and part B 
     covered stays.
       The Inspector General of HHS would be required to monitor 
     part B payments to SNFs on behalf of residents who are not in 
     a part A covered stay.
     Section 314. Adjustment of rehabilitation RUGS to correct 
         anomaly in payment rates
       Effective for skilled nursing facility (SNF) services 
     furnished on or after April 1, 2002, the provision would 
     increase by 6.7 percent certain federal per diem payments to 
     ensure that Medicare payments for SNF residents with ``ultra 
     high'' and ``high'' rehabilitation therapy needs are 
     appropriate in relation to payments for residents needing 
     ``medium'' or ``low'' levels of therapy. The 20 percent 
     additional payment that was provided in BBRA 99 for certain 
     RUGS is removed to make this provision budget neutral.
       The Inspector General of HHS would be required to review 
     and report to Congress by October 1, 2001, regarding whether 
     the RUG payment structure as in effect under the BBRA 99 
     includes incentives for the delivery of inadequate care.
     Section 315. Establishment of process for geographic 
         reclassification
       The provision would permit the Secretary to establish a 
     process for geographic reclassification of skilled nursing 
     facilities based upon the method used for inpatient 
     hospitals. The Secretary may implement the process upon 
     completion of the data collection necessary to calculate an 
     area wage index for workers in skilled nursing facilities.

                        Subtitle C--Hospice Care

     Section 321. Full market basket increase for 2001
       The provision would modify update procedures for Medicare 
     daily payment rates for hospice care. It would provide an 
     increase in FY 2001 equal to the full increase in the market 
     basket index. (The rates would be lower in the period October 
     1, 2000, through March 21, 2001, and higher in the period 
     April 1, 2001, through September 30, 2001.) For FY 2002, 
     payments would be updated by the market basket index increase 
     minus .25 percentage point. The temporary increase in payment 
     rates provided in BBRA 99 for FY 2001 and FY 2002 (.5 percent 
     and .75 percent, respectively) would be included in the base 
     on which updates are computed.

[[Page H11057]]

     Section 322. Clarification of physician certification
       Effective for certifications of terminal illness made on or 
     after the date of enactment, the provision would modify 
     current law to specify that the physician's or hospice 
     medical director's certification of terminal illness would be 
     based on his/her clinical judgment regarding the normal 
     course of the individual's illness. The Secretary would be 
     required to study and report to Congress within 2 years of 
     enactment on the appropriateness of certification of 
     terminally ill individuals and the effect of this provision 
     on such certification.
     Section 323. MedPAC report on access to, and use of, hospice 
         benefit
       The provision would require MedPAC to examine the factors 
     affecting the use of Medicare hospice benefits, including 
     delay of entry into the hospice program and urban and rural 
     differences in utilization rates. The provision would require 
     a report on the study to be submitted to Congress 18 months 
     after enactment.
     Section 331. Relief From Medicare Part A late enrollment 
         penalty for group buy-in for state and local retirees
       The provision would exempt certain state and local 
     retirees, retiring prior to January 1, 2002, from the Part A 
     delayed enrollment penalties. These would be groups of 
     persons for whom the state or local government elected to pay 
     the delayed Part A enrollment penalty for life. The amount of 
     the delayed enrollment penalty which would otherwise be 
     assessed would be reduced by an amount equal to the total 
     amount of Medicare payroll taxes paid by the employee and the 
     employer on behalf of the employee.
       Section 332. Posting of information on nursing facility 
     staffing.
       The provision would require skilled nursing facilities to 
     post nurse staffing information daily for each shift in the 
     facility.

                Title IV--Provisions Relating to Part B

                Subtitle A--Hospital Outpatient Services

     Section 401. Revision of hospital outpatient PPS payment 
         update
       Effective as if enacted with the BBRA 99, the provision 
     would modify the current law update rates applicable to the 
     hospital outpatient PPS by providing in FY 2001 an update 
     equal to the full rate of increase in the market basket 
     index. As under current law, the increase in FY 2002 would be 
     the market basket index increase minus one percentage point.
       If the Secretary determines that updates to the adjustment 
     factor used to convert the relative utilization weights under 
     the PPS into payment amounts have, or are likely to, result 
     in hospitals' changing their coding or classification of 
     covered services, thereby changing aggregate payments, the 
     Secretary would be authorized to adjust the conversion factor 
     in later years to eliminate the effect of coding or 
     classification changes.
     Section 402. Clarifying process and standards for determining 
         eligibility of devices for pass-through payments under 
         hospital outpatient PPS
       The provision would modify the procedures and standards by 
     which certain medical devices are categorized and determined 
     eligible for pass-through payments under the PPS. Through 
     public rule-making procedures, the Secretary would be 
     required to establish criteria for defining special payment 
     categories under the PPS for new medical devices. The 
     Secretary would be required to promulgate, through the use of 
     a program memorandum, initial categories that would encompass 
     each of the individual devices that the Secretary had 
     designated as qualifying for the pass-through payments to 
     date. In addition, similar devices not so designated because 
     they were payable under Medicare prior to December 31, 1996, 
     would also be included in initial categories. The Secretary 
     would be required to create additional new categories in the 
     future to accommodate new technologies meeting the ``not 
     insignificant cost'' test established in BBRA 99.
       Once the categories were established, pass-through payments 
     currently authorized under section 1833(t)(b) of the Social 
     Security Act would proceed on a category-specific, rather 
     than device-specific basis. These payments would be 
     designated as ``category-based pass-through payments.'' These 
     payments would be continued to be made for the 2 to 3 years 
     payment period originally specified in BBRA 99, and, for each 
     given category, would begin when the first such payment is 
     made for any device included in a specified category. At the 
     conclusion of this transitional payment period, categories 
     would sunset and payment for the device would be included in 
     the underlying PPS payment for the related service.
     Section 403. Application of OPD PPS transitional corridor 
         payments to certain hospitals that did not submit a 1996 
         cost report
       Effective as if enacted with BBRA 99, the provision would 
     modify current law as enacted in BBA 99 to enable all 
     hospitals, not just those hospitals filing 1996 cost reports, 
     to be eligible for transitional payments under the PPS.
     Section 404. Application of rules for determining provider-
         based status for certain entities
       The provision would grandfather existing arrangements 
     whereby certain entities (such as outpatient clinics, skilled 
     nursing facilities, etc.) are considered ``provider-based'' 
     entities, meaning they are affiliated financially and 
     clinically with a main hospital. Existing provider-based 
     status designations would continue for two years beginning 
     October 1, 2000. If a facility or organization requests 
     approval for provider-based status during the period October 
     1, 2000, through September 31, 2002, it could not be treated 
     as if it did not have such status during the period of time 
     the determination is pending. In making such a status 
     determination on or after October 1, 2000, HCFA would treat 
     the applicant as satisfying any requirements or standards for 
     geographic location if it satisfied geographic location 
     requirements in regulations or is located not more than 35 
     miles from the main campus of the hospital.
       An applicant facility or organization would be treated as 
     satisfying all requirements for provider-based status if it 
     is owned or operated by a unit of State or local government 
     or is a public or private nonprofit corporation that is 
     formally granted governmental powers by a unit of State or 
     local government, or is a private hospital that, under 
     contract, serves certain low income households or has a 
     certain disproportionate share adjustment.
       These provisions are in effect during a two-year period 
     beginning on October 1, 2000.
     Section 405. Treatment of children's hospitals under 
         prospective payment system
       The BBRA 99 provides special ``hold harmless'' payments to 
     ensure that cancer hospitals would receive no less under the 
     hospital outpatient PPS than they would have received, in 
     aggregate, under the ``pre-BBA'' system, that is, the pre-PPS 
     payment system. Effective as if included in the BBRA 99, the 
     provision would extend this hold harmless protection to 
     children's hospitals.
     Sec 406. Inclusion of temperature monitored cryoablation
       The provision would include temperature monitored 
     cryoablation as part of the transitional pass-through for 
     certain medical devices, drugs, and biologicals under the 
     hospital outpatient prospective payment system, effective 
     April 1, 2001.

         Subtitle B--Provisions Relating to Physicians Services

     Section 411. GAO studies relating to physicians' services
       The provision would require the GAO to conduct a study on 
     the appropriateness of furnishing in physicians offices 
     specialist services (such as gastrointestinal endoscopic 
     physicians services) which are ordinarily furnished in 
     hospital outpatient departments. The GAO would also be 
     required to study the refinements to the practice expense 
     relative value units made during the transition to the 
     resource-based system.
     Section 412. Physician group practice demonstration
       The provision would require the Secretary to conduct 
     demonstration projects to test, and if proven effective, 
     expand the use of incentives to health care groups 
     participating under Medicare. Such incentives would be 
     designed to encourage coordination of care furnished under 
     Medicare Parts A and B by institutional and other 
     providers and practitioners; to encourage investment in 
     administrative structures and processes to encourage 
     efficient service delivery; and to reward physicians for 
     improving health outcomes. The Secretary would establish 
     for each group participating in a demonstration, a base 
     expenditure amount and an expenditure target (reflecting 
     base expenditures adjusted for risk and expected growth 
     rates). The Secretary would pay each group a bonus for 
     each year equal to a portion of the savings for the year 
     relative to the target. In addition, at such time as the 
     Secretary had developed appropriate criteria, the 
     Secretary would pay an additional bonus related to process 
     and outcome improvements. Total payments under 
     demonstrations could not exceed what the Secretary 
     estimates would be paid in the absence of the 
     demonstration program.
     Section 413. Study on enrollment procedures for groups that 
         retain independent contractor physicians
       The provision would require the Comptroller General to 
     conduct a study of the current Medicare enrollment process 
     for groups that retain independent contractor physicians; 
     particular emphasis would be placed on hospital-based 
     physicians, such as emergency department staffing groups.

                       Subtitle C--Other Services

     Section 421. One-year extension of moratorium on therapy 
         caps; report on standards for supervision of physical 
         therapy assistants
       The provision would extend the moratorium on the physical 
     therapy and occupational therapy caps for 1 year through 
     2002; it would also extend the requirement for focused 
     reviews of therapy claims for the same period. The Secretary 
     would be required to conduct a study on the implications of 
     eliminating the ``in the room'' supervision requirement for 
     Medicare payment for physical therapy assistants who are 
     supervised by physical therapists and the implications of 
     this requirement on the physical therapy cap.
     Section 422. Update in renal dialysis composite rate
       The provision would specify that the composite rate payment 
     for renal dialysis services would be increased by 2.4% for 
     2001. The provision would require the Secretary to collect 
     data and develop an end-stage renal disease (ESRD) market 
     basket whereby the Secretary could estimate before the 
     beginning of a year the percentage increase in costs for the 
     mix of labor and non-labor goods and

[[Page H11058]]

     services included in the composite rate. The Secretary would 
     report to Congress on the index together with recommendations 
     on the appropriateness of an annual or periodic update 
     mechanism for dialysis services. The Comptroller General 
     would be required to study the access of beneficiaries to 
     dialysis services. There is a hold harmless provision for 
     facilities who received exemptions for their 2000 rates, and 
     for facilities that had their applications denied in 2000 but 
     resubmit them by July 1, 2001and are approved.
     Section 423. Payment for ambulance services
       The provision would provide for the full inflation update 
     in ambulance payments for 2001. It would also specify that 
     any phase-in of the ambulance fee schedule would provide for 
     full payment of national mileage rates in states where 
     separate mileage payments were not made prior to 
     implementation of the fee schedule.
     Section 424. Ambulatory surgical centers
       The provision would delay implementation of proposed 
     regulatory changes to the ambulatory payment classification 
     system, which are based on 1994 cost data, until January 1, 
     2002. At that time, such changes would be phased in over 4 
     years: in the first year the payment amounts would be 25 
     percent of the revised rates and 75 percent of the prior 
     system rates; in the second year payments would be 50 percent 
     of the revised rates and 50 percent of the prior system 
     rates, etc. The provision also requires that the revised 
     system, based on 1999 (or later) cost data, be implemented 
     January 1, 2003. (The phase-in of the revised system and 1994 
     data would end when the system with 1999 or later data was 
     implemented.)
     Section 425. Full update for durable medical equipment
       The provision would modify updates to payments for durable 
     medical equipment. For 2001, the payments for covered DME 
     would be increased by the full increase in the consumer price 
     index for urban consumers during the 12-month period ending 
     June 2000. No increase would be authorized for 2002.
     Section 426. Full update for orthotics and prosthetics
       The provision would modify updates to payments for 
     orthotics and prosthetics: in 2000 the rates would be 
     increased by one percent; in 2001, the increase would be 
     equal to the percentage increase in the consumer price index 
     for urban consumers during the 12-month period ending with 
     June, 2000; for 2002, payments would be increased by one 
     percent over the prior year's amounts.
     Section 427. Establishment of special payment provisions and 
         requirements for prosthetics and certain custom 
         fabricated orthotic items
       Under the provision, certain prosthetics or custom 
     fabricated orthotics would be covered by Medicare if 
     furnished by a qualified practitioner and fabricated by a 
     qualified practitioner or qualified supplier. The Secretary 
     would be required to establish a list of such items in 
     consultation with experts. Within one year of enactment, the 
     Secretary would be required to promulgate regulations to 
     provide these items, using negotiated rulemaking procedures.
       Not later than 6 months from enactment, the Comptroller 
     General would be required to submit to Congress a report on 
     the Secretary's compliance with the Administrative Procedures 
     Act with regard to HCFA Ruling 96-1; certain impacts of that 
     ruling; the potential for fraud and abuse in provision of 
     prosthetics and orthotics under special payment rules and for 
     custom fabricated items; and the effect on Medicare and 
     Medicaid payments if that ruling were overturned.
     Section 428. Replacement of prosthetic devices and parts
       The provision would authorize Medicare coverage for 
     replacement of artificial limbs, or replacement parts for 
     such devices, if ordered by a physician for specified 
     reasons. Effective for items furnished on or after enactment, 
     coverage would apply to prosthetic items 3 or more years old, 
     and would supersede any 5-year age rules for such items under 
     current law.
     Section 429. Revised part B payment for drugs and biologicals 
         and related services
       The provision would require the Comptroller General to 
     study and submit a report to Congress and the Secretary on 
     the reimbursement for drugs and biologicals and for related 
     services under Medicare; the report would include specific 
     recommendations for revised payment methodologies. The 
     Secretary would revise the current payment methodologies for 
     covered drugs and biologicals and related services based on 
     these recommendations; however, total payments under the 
     revised methodologies could not exceed the aggregate payments 
     the Secretary estimates would have been made under the 
     current law. The provision would establish a temporary 
     injunction on changes in payment rates until the Secretary 
     reviewed the GAO report.
     Section 430. Contrast enhanced diagnostic procedures under 
         hospital prospective payment system
       The provision would require the Secretary to create under 
     that hospital outpatient PPS additional and separate groups 
     of covered services which include procedures that utilize 
     contrast media. The provision would take effect January 1, 
     2001. and separate groups of covered services which include 
     procedures that utilize contrast media.
     Section 431. Qualifications for community mental health 
         centers
       The provision would clarify the qualifications for 
     community mental health centers providing partial 
     hospitalization services under Medicare.
     Section 432. Modification of medicare billing requirements 
         for certain indian providers
       The provision would authorize hospitals and free-standing 
     ambulatory care clinics of the Indian Health Service to bill 
     Medicare for services which are paid for under the physician 
     fee schedule.
     Section 433. GAO study on coverage of surgical first 
         assisting services of certified registered nurse first 
         assistants
       The provision would require the Comptroller General to 
     conduct a study on the effect on both the program and 
     beneficiaries of covering surgical first assisting services 
     of certified registered nurse first assistants.
     Section 434. MedPAC study and report on medicare 
         reimbursement for services provided by certain providers
       The provision would require MedPAC to conduct a study on 
     the appropriateness of current payment rates for services 
     provided by a certified nurse midwife, physician assistant, 
     nurse practitioner, and clinical nurse specialist.
     Section 435. MedPAC study and report on medicare coverage of 
         services provided by certain non-physician providers
       The provision would require MedPAC to conduct a study to 
     determine the appropriateness of Medicare coverage of the 
     services provided by a surgical technologist, marriage 
     counselor, pastoral care counselor, and licensed professional 
     counselor of mental health.
     Section 436. GAO study and report on the costs of emergency 
         and medical transportation services
       The provision would require the Comptroller General to 
     conduct a study on the costs of providing emergency and 
     medical transportation services across the range of acuity 
     levels of conditions for which such transportation services 
     are provided.
     Section 437. GAO studies and reports on medicare payments
       The provision would require the Comptroller General to 
     conduct a study on the post-payment audit process for 
     physicians services. The study would include the proper level 
     of resources HCFA should devote to educating physicians 
     regarding coding and billing, documentation requirements, and 
     calculation of overpayments. The Comptroller General would 
     also be required to conduct a study of the aggregate effects 
     of regulatory, audit, oversight and paperwork burdens on 
     physicians and other health care providers participating in 
     Medicare.
     Section 439. MedPAC study on access to outpatient pain 
         management services
       The provision would require MedPAC to conduct a study on 
     the barriers to coverage and payment for outpatient 
     interventional pain medicine procedures under Medicare.

              TITLE V--PROVISION RELATING TO PARTS A AND B

                    Subtitle A--Home Health Services

     Section 501. 1-Year additional delay in application of 15 
         percent reduction on payment limits fo home health 
         services
       The provision would require that the aggregate amount of 
     Medicare payments to home health agencies in the second year 
     of the PPS (FY 2002) shall equal the aggregate payments in 
     the first year of the PPS, updated by the market basket index 
     (MBI) increase minus 1.1 percentage points. The 15 percent 
     reduction to aggregate PPS amounts, which, under current law, 
     would go into effect October 1, 2001, would be delayed until 
     October 1, 2002.
       The Comptroller General (rather than the Secretary) would 
     be required to submit, by April 1, 2002, a report analyzing 
     the need for the 15 percent or other reduction.
       If the Secretary determines that updates to the PPS system 
     for a previous fiscal year (or estimates of such adjustments 
     for a future fiscal year) did (or are likely to) result in a 
     change in aggregate payments due to changes in coding or 
     classification of beneficiaries' service needs that do not 
     reflect real changes in case mix, effective for home health 
     episodes concluding on or after October 1, 2001, the 
     Secretary may adjust PPS amounts to eliminate the effect of 
     such coding or classification changes.
     Section 502. Restoration of full home health market basket 
         update for home health services for fiscal year 2001
       The provision would modify the home health PPS updates. 
     During the period October 1, 2000, through March 31, 2001, 
     the rates promulgated in the home health PPS regulations on 
     July 3, 2000, would apply for 60-day episodes of care (or 
     visits) ending in that period. For the period April 1, 2001, 
     through September 31, 2001, those rates would be increased by 
     2.2 percent for 60-day episodes (or visits) ending in that 
     time period.
     Section 503. Temporary two-month extension of periodic 
         interim payments
       The provision would extend applicability of periodic 
     interim payments provided under current law. Home health 
     agencies that were receiving such payments as of September 
     30, 2000, would continue to receive them until December 1, 
     2000. The payments in each of

[[Page H11059]]

     November and December 2000 would equal the amount those 
     agencies received in October 2000. The amounts would be 
     included in the agency's last settled cost report before 
     implementation of the PPS.
     Section 504. Use of telehealth in delivery of home health 
         services
       The provision would clarify that the telecommunications 
     provisions should not be construed as preventing a home 
     health agency from providing a service, for which payment is 
     made under the prospective payment system, via a 
     telecommunications system, provided that the services do not 
     substitute for ``in-person'' home health services ordered by 
     a physician as part of a plan of care or are not considered a 
     home health visit for purposes of eligibility or payment.
     Section 505. Study on costs to home health agencies of 
         purchasing nonroutine medical supplies
       The provision would require that, not later than October 1, 
     2001, the Comptroller General shall submit to Congress a 
     report regarding the variation in prices home health agencies 
     pay for nonroutine supplies, the volume of supplies used, and 
     what effect the variations have on the provision of services. 
     The Secretary would be required to make recommendations on 
     whether Medicare payment for those supplies should be made 
     separately from the home health PPS.
     Section 506. Treatment of branch offices; GAO study on 
         supervision of home health care provided in isolated 
         rural areas
       The provision would clarify that neither time nor distance 
     between a home health agency parent office and a branch 
     office shall be the sole determinant of a home health 
     agency's branch office status. The Secretary would be 
     authorized to include forms of technology in determining 
     ``supervision'' for purposes of determining a home health 
     agency's branch office status.
       Not later than January 1, 2002, the Comptroller General 
     would be required to submit to Congress a report regarding 
     the adequacy of supervision and quality of home health 
     services provided by home health agency branch offices and 
     subunits in isolated rural areas and to make recommendations 
     on whether national standards for supervision would be 
     appropriate in assuring quality.
     Section 507. Clarification of the homebound benefit
       The provision clarifies that the need for adult day care 
     for patient's plan of treatment does not preclude appropriate 
     coverage for home health care for other medical conditions. 
     The provision also clarifies the ability of homebound 
     beneficiaries to attend religious services without being 
     disqualified from receiving home health benefits.

             Subtitle B--Direct Graduate Medical Education

     Section 511. Increase in floor for direct graduate medical 
         education payments
       A hospital's approved per resident amount for cost 
     reporting periods beginning during FY2002 would not be less 
     than 85% of the locality adjusted national average per 
     resident amount.
     Section 512. Change in distribution formula for 
         Medicare+Choice-related nursing and allied health 
         education costs
       A hospital would receive nursing and allied health payments 
     for Medicare managed care enrollees based on its per day cost 
     of allied and nursing health programs and number of days 
     attributed to Medicare enrollees in comparison to that in all 
     other hospitals. The provision would be effective for 
     portions of cost reporting periods occurring on or after 
     January 1, 2001.

      Subtitle C--Changes in Medicare Coverage and Appeals Process

     Section 521. Revisions to medicare appeals process
       The provision would modify the Medicare appeals process. 
     Generally, initial determinations by the Secretary would be 
     concluded no later than 45-days from the date the Secretary 
     received a claim for benefits. Any individual dissatisfied 
     with the initial determination would be entitled to a 
     redetermination by the carrier or fiscal intermediary who 
     made the initial determination. Such redetermination would be 
     required to be completed within 30 days of a beneficiary's 
     request. Beneficiaries could appeal the outcome of a 
     redetermination by seeking a reconsideration. Generally, a 
     request for a reconsideration must be initiated no later than 
     180 days after the date the individual receives the notice of 
     an adverse redetermination. In addition, if contested amounts 
     are greater than $100, an individual would be able to appeal 
     an adverse reconsideration decision by requesting a hearing 
     by the Secretary (first for a hearing by an administrative 
     law judge, then in certain circumstances, for a hearing 
     before the Department Appeals Board). If the dispute is not 
     satisfactorily resolved through this administrative process, 
     and if contested amounts are greater than $1,000, the 
     individual would be able to request judicial review of the 
     Secretary's final decision. Aggregation of claims to meet 
     these thresholds would be permitted.
       An expedited determination would be available for a 
     beneficiary who received notice: 1) that a provider plans to 
     terminate services and a physician certifies that failure to 
     continue the provisions of the services is likely to place 
     the beneficiary's health at risk; or 2) that the provider 
     plans to discharge the beneficiary.
       The Secretary would enter into 3-year contracts with at 
     least 12 qualified independent contractors (QICs) to conduct 
     reconsiderations. A QIC would promptly notify beneficiaries 
     and Medicare claims processing contractors of its 
     determinations. A beneficiary could appeal the decision of a 
     QIC to an ALJ. In cases where the ALJ decision is not 
     rendered within the 90-day deadline, the appealing party 
     would be able to request a DAB hearing.
       The Secretary would perform outreach activities to inform 
     beneficiaries, providers, and suppliers of their appeal 
     rights and procedures. The Secretary would submit to Congress 
     an annual report including information on the number of 
     appeals for the previous year, identifying issues that 
     require administrative or legislative actions, and including 
     recommendations for change as necessary. The report would 
     also contain an analysis of the consistency of the QIC 
     determinations as well as the cause for any identified 
     inconsistencies.
     Section 522. Revisions to medicare coverage process
       The provision would clarify when and under what 
     circumstances Medicare coverage policy could be challenged. 
     An aggrieved party could file a complaint concerning a 
     national coverage decision. Such complaint would be reviewed 
     by the Department Appeals Board (DAB) of HHS. The provision 
     would also permit an aggrieved party to file a complaint 
     concerning a local coverage determination. In this case, the 
     determination would be reviewed by an administrative law 
     judge. If unsatisfied, complainants could subsequently seek 
     review of such a local policy by the DAB. In both cases, a 
     DAB decision would constitute final HHS action, and would be 
     subject to judicial review. The provision would also permit 
     an affected party to submit a request to the Secretary to 
     issue a national coverage or noncoverage determination if one 
     has not been issued. The Secretary would have 90 days to 
     respond. HHS would be required to prepare an annual report on 
     national coverage determinations.

            Subtitle D--Improving Access to New Technologies

     Section 531. Reimbursement improvements for new clinical 
         laboratory tests and durable medical equipment
       The provision would specify that the national limitation 
     amount for a new clinical laboratory test would equal 100% of 
     the national median for such test. The Secretary would be 
     required to establish procedures that permit public 
     consultation for coding and payment determinations for new 
     clinical diagnostic laboratory tests and new durable medical 
     equipment. The Secretary would be required to report to 
     Congress on specific procedures used to adjust payments for 
     advanced technologies; the report would include 
     recommendations for legislative changes needed to assure fair 
     and appropriate payments.
     Section 532. Retention of HCPCS level III Codes.
       The provision would extend the time for the use of local 
     codes (known as HCPCS level III codes) through December 31, 
     2003; the Secretary would be required to make the codes 
     available to the public.
     Section 533. Recognition of new medical technologies under 
         medicare inpatient hospital PPS
       The Secretary would be required to submit a report to 
     Congress no later than April 1, 2001, on potential methods 
     for more rapidly incorporating new medical services and 
     technologies used in the inpatient setting in the clinical 
     coding system used with respect to payment for inpatient 
     services. The Secretary would be required to identify the 
     preferred methods for expediting these coding modifications 
     in her report, and to implement such method by October 1, 
     2001. Additional hospital payments could be made by means of 
     a new technology group (DRG), an add-on payment, payment 
     adjustment or other mechanism. However, separate fee 
     schedules for additional new technology payments would not be 
     permitted. The Secretary would implement the new mechanism on 
     a budget neutral basis. The total amount of projected 
     additional payments under the mechanism would be limited to 
     an amount not greater than the Secretary's annual estimation 
     of the costs attributable to the introduction of new 
     technology in the hospital sector as a whole (as estimated 
     for purposes of the annual hospital update calculation).

                      Subtitle E--Other Provisions

     Section 541. Increase in reimbursement for bad debt
       Effective beginning with cost reports starting in FY2001, 
     the provision would increase the percentage of the reasonable 
     costs associated with beneficiaries' bad debt in hospitals 
     that Medicare would reimburse to 70%.
     Section 542. Treatment of certain physician pathology 
         services under medicare
       The provision would permit independent laboratories, under 
     a grandfather arrangement to continue, for a 2-year period 
     (2001-2002), direct billing for the technical component of 
     pathology services provided to hospital inpatients and 
     hospital outpatients. The Comptroller General would be 
     required to conduct a study of the effect of these provisions 
     on hospitals and laboratories and access of fee-for-service 
     beneficiaries to the technical component of physician 
     pathology services. The report would include recommendations 
     on whether the provisions should continue after the 2-year 
     period for either (or both) inpatient and outpatient

[[Page H11060]]

     hospital services and whether the provision should be 
     extended to other hospitals.
     Section 543. Extension of advisory opinion authority
       The Office of the Inspector General's authority to issue 
     advisory opinions to outside parties who request guidance on 
     the applicability of the anti-kickback statute, safe harbor 
     provisions and other OIG health care fraud and abuse 
     sanctions would be made permanent.
     Section 544. Change in annual MedPAC reporting
       The provision would delay the reporting date for the MedPAC 
     report on issues affecting the Medicare program by 15 days to 
     June 15. The provision would also require record votes on 
     recommendations contained both in this report and the March 
     report on payment policies.
     Section 545. Development of patient assessment instruments
       The provision would require the Secretary to report to the 
     Congress on the development of standard instruments for the 
     assessment of the health and functional status of patients 
     and make recommendations on the use of such standard 
     instruments for payment purposes.
     Section 546. GAO report on impact of the emergency medical 
         treatment and Active Labor Act (EMTALA) on hospital 
         emergency departments
       GAO would be required to evaluate the impact of the 
     Emergency Medical Treatment and Active Labor Act on 
     hospitals, emergency physicians, and on-call physicians 
     covering emergency departments and to submit a report to 
     Congress by May 1, 2001.

 TITLE VI--PROVISIONS RELATING TO PART C (MEDICARE+CHOICE PROGRAM) AND 
                 OTHER MEDICARE MANAGED CARE PROVISIONS

              Subtitle A--Medicare+Choice Payment Reforms

     Section 601. Increase in minimum payment amount
       The provision would set the minimum payment amount for aged 
     enrollees within the 50 states and the District of Columbia 
     in a Metropolitan Statistical Area with a population of more 
     than 250,000 at $525 in 2001. For all other areas within the 
     50 States and the District of Columbia, the minimum would be 
     $475. For any area outside the 50 States and the District of 
     Columbia, the $525 and $475 minimum amounts would also be 
     applied, except that the 2001 minimum payment amount could 
     not exceed 120% of the 2000 minimum payment amount.
     Section 602. Increase in minimum percentage increase
       This provision would apply a 3% minimum update in 2001 and 
     return to the current law minimum update of 2% thereafter.
     Section 603. 10-Year phase in of risk adjustment
       Until such time that risk adjustment is based on data from 
     inpatient hospital and ambulatory settings, 10% of payments 
     would be based on risk-adjusted inpatient data built on the 
     15 principal inpatient diagnostic cost groups (PIP-DCGs) and 
     90% would be adjusted solely using the older demographic 
     method. Beginning with the first year that risk adjustment is 
     based on data from inpatient hospitals and ambulatory 
     settings, it would be phased in over 10 years, in equal 
     increments. (The Secretary currently plans to implement 
     this new system in 2004.)
     Section 604. Transition to revised Medicare+Choice payment 
         rates
       Within 2 weeks after the date of enactment of the Act, the 
     Secretary must announce revised M+C capitation rates for 
     2001, due to changes from this Act. Plans that previously 
     provided notice of their intention to terminate contracts or 
     reduce their service area for 2001 would have 2 weeks after 
     announcement of the revised rates to rescind their notice and 
     submit ACR information. Further, any M+C organization that 
     would receive higher capitation payments as a result of this 
     Act must submit revised ACR information within 2 weeks after 
     announcement of the revised rates. Plans may only reduce 
     premiums, reduce cost sharing, enhance benefits, or utilize 
     stabilization funds. Notwithstanding the issuance of revised 
     rates, M+C organizations would continue to be paid on a fee-
     for-service basis for costs associated with new national 
     coverage determinations that are made mid-year.
     Section 605. Revision of payment rates for ESRD patients 
         enrolled in Medicare+Choice plans
       This provision would require that the Secretary increase 
     the M+C payment rates for enrollees with ESRD. The revised 
     rates would reflect the demonstration rate (including the 
     risk-adjustment methodology) of social health maintenance 
     organizations' ESRD capitation demonstrations. The revised 
     rates would include adjustments for factors such as renal 
     treatment modality, age, and underlying cause of the disease.
     Section 606. Permitting premium reductions as additional 
         benefits under Medicare+Choice plans
       This provision would permit M+C plans to offer reduced 
     Medicare Part B premiums to their enrollees as part of 
     providing any required additional benefits or reduced cost-
     sharing. An M+C organization could elect a reduction in its 
     M+C payment up to 125% of the annual Part B premium. However, 
     only 80% of this amount could be used to reduce an enrollee's 
     actual Part B premium. This would have the effect of 
     returning up to 100% of the beneficiary's Part B premium. The 
     reduction would apply uniformly to each enrollee of the M+C 
     plan. Plans would include information about Part B premium 
     reductions as part of the required information that is 
     provided to enrollees for comparing plan options.
     Section 607. Full implementation of risk adjustment for 
         congestive heart failure enrollees for 2001
       This provision would fully implement risk adjustment based 
     on inpatient hospital diagnoses for an individual who had a 
     qualifying congestive heart failure inpatient diagnosis 
     between July 1, 1999 and June 30, 2000, if that individual 
     was enrolled in a coordinated care plan offered on January 1, 
     2001. This would apply for only 1 year, beginning on January 
     1, 2001. This payment amount would be excluded from the 
     determination of the budget neutrality factor.
     Section 608. Expansion of application of Medicare+Choice new 
         entry bonus
       This provision would expand the application of the new 
     entry bonus for M+C plans to include areas for which 
     notification had been provided, as of October 3, 2000, that 
     no plans would be available January 1, 2001.
     Section 609. Report on inclusion of certain costs of the 
         Department of Veterans Affairs and Military Facility 
         Services in calculating Medicare+Choice payment rates
       The Secratary shall report to Congress by January 1, 2003, 
     on a method to phase-in the costs of military facility 
     services furnished by the Department of Veterans Affairs or 
     the Department of Defense to Medicare-eligible beneficiaries 
     in the calculation of an area's M+C capitation payment. This 
     report would include, on a county-by-county basis: the actual 
     or estimated costs of such services to Medicare-eligible 
     beneficiaries; the change in M+C capitation payment rates if 
     such costs were included in the calculation of payment rates; 
     one or more proposals for the implementation of payment 
     adjustments to M+C plans in counties where the payment rate 
     has been affected due to failure to account for the cost of 
     such services; and a system to ensure that when a M+C 
     enrollee receives covered services through a facility of 
     these Departments, there is an appropriate payment recovery 
     to the Medicare program.

               Subtitle B--Other Medicare+Choice Reforms

     Section 611. Payments of additional amounts for new benefits 
         covered during a contract term
       The provision would require payment adjustments to M+C 
     plans if a legislative change resulted in significant 
     increased costs, similar to the current law requirements for 
     adjusting payments due to significant increased costs 
     resulting from National Coverage Determination (NCDs). In 
     addition, this provision would require that cost projections 
     and payment adjustments be based on actuarial estimates 
     provided by the Chief Actuary of the Health Care Financing 
     Administration.
     Section 612. Restriction on implementation of significant new 
         regulatory requirements mid-year
       The provision would preclude the Secretary from 
     implementing, other than at the beginning of a calendar year, 
     regulations that impose new, significant regulatory 
     requirements on M+C organizations and plans.
     Section 613. Timely approval of marketing material that 
         follows model marketing language
       The provision would require the Secretary to make 
     decisions, within 10 days, approving or modifying marketing 
     material used by M+C organizations, provided that the 
     organization uses model language specified by the Secretary. 
     This provision would apply to marketing material submitted on 
     or after January 1, 2001.
     Section 614. Avoiding duplicative regulation
       This provision would further stipulate when Medicare law 
     preempts State law or regulation from applying to M+C plans, 
     by specifying that the term benefit requirements includes 
     cost-sharing requirements. Second, the provision would 
     stipulate that State laws and regulations affecting marketing 
     materials, and summaries and schedules of benefits regarding 
     an M+C plan, would also be preempted by Medicare law.
     Section 615. election of uniform local coverage policy For 
         Medicare+Choice plan covering multiple localities
       An M+C organization offering a plan in an area with more 
     than one local coverage policy would be able to elect to have 
     the local coverage policy for the part of the area that is 
     most beneficial to M+C enrollees (as identified by the 
     Secretary) apply to all M+C enrollees enrolled in the plan.
     Section 616. Eliminating health disparities in 
         Medicare+Choice Program
       This provision would expand the M+C quality assurance 
     programs for M+C plans to include a separate focus on racial 
     and ethnic minorities. The Secretary would also be required 
     to report to Congress how the quality assurance programs 
     focus on racial and ethnic minorities, within 2 years after 
     enactment and biannually thereafter.
     Section 617. Medicare+Choice Program compatibility with 
         employer or union group health plans
       In order to make the M+C program compatible with employer 
     or union group health plans, this provision would allow the 
     Secretary to waive or modify requirements that hinder the 
     design of, offering of, or enrollment in certain M+C plans. 
     Plans included in

[[Page H11061]]

     the category are M+C plans under contract between M+C 
     organizations and employers, labor organizations, or trustees 
     of a fund established by employers and/or labor 
     organizations.
     Section 618. Special Medigap enrollment anti-discrimination 
         provision for certain beneficiaries
       This provision would extend the period for Medigap 
     enrollment for certain M+C enrollees affected by termination 
     of coverage. For individuals enrolled in an M+C plan during a 
     12-month trial period, their trial period would begin again 
     if they re-enrolled in another M+C plan because of an 
     involuntary termination. During this new trial period, they 
     would retain their rights to enroll in a Medigap policy; 
     however, the total time for a trial period could not exceed 2 
     years from the time they first enrolled in an M+C plan.
     Section 619. Restoring effective date of elections and 
         changes of elections of Medicare+Choice plans
       This provision would allow individuals who enroll in an M+C 
     plan after the 10th day of the month to receive coverage 
     beginning on the first day of the next calendar month, 
     effective January 1, 2001.
     Section 620. Permitting ESRD beneficiaries to enroll in 
         another Medicare+Choice plan if the plan in which they 
         are enrolled is terminated
       This provision would permit ESRD beneficiaries to enroll in 
     another M+C plan if they lost coverage when their plan 
     terminated its contract or reduced its service area. This 
     provision would also be retroactive, to include individuals 
     whose enrollment in an M+C plan was terminated between 
     December 31, 1998 and enactment of this legislation.
     Section 621. Providing choice for skilled nursing facility 
         services under the Medicare+Choice program
       Effective for M+C contracts entered into or renewed on or 
     after the date of enactment, the provision would require an 
     M+C plan to cover post-hospitalization skilled nursing care 
     through an enrollee's ``home skilled nursing facility'' if 
     the plan has a contract with the facility or if the home 
     facility agrees to accept substantially similar payment under 
     the same terms and conditions that apply to similarly 
     situated SNFs that are under contract with the plan. A ``home 
     skilled nursing facility'' is defined as (a) one in which the 
     enrollee resided at the time of the hospital admission that 
     triggered eligibility for SNF care upon discharge, or (b) is 
     the facility that is providing such services through the 
     continuing care retirement community in which the enrollee 
     resided at the time of hospital admission, or (c) is the 
     facility in which the spouse of the enrollee is residing at 
     the time of the enrollee's hospital discharge. The 
     beneficiary would be required to receive coverage for SNF 
     care at the home facility that is no less favorable than he 
     or she would receive otherwise in another SNF that has a 
     contract with the plan.
       Home skilled nursing facilities are permitted to refuse to 
     accept Medicare+Choice enrollees or to impose conditions on 
     their acceptance of such an enrollee.
       The provision would require the Medicare Payment Advisory 
     Commission (MedPAC) to analyze and, within 2 years of 
     enactment, report to Congress on the effects of this 
     provision on the scope of benefits, administrative and other 
     costs incurred by M+C organizations, and the contractual 
     relationships between those plans and SNFs.
     Section 622. Providing for accountability of Medicare+Choice 
         plans
       The provision would mandate review of ACR submissions by 
     the HCFA Chief Actuary with respect to submissions for ACRs 
     filed for 2001 and thereafter.

                 Subtitle C--Other Managed Care Reforms

     Section 631. 1-Year extension of Social Health Maintenance 
         Organization (SHMO) demonstration poject
       The provision would extend SHMO waivers until 30 months 
     after the Secretary submits a report with a plan for 
     integration and transition of SHMOs into an option under the 
     M+C program. This 30-month extension would supersede the 18-
     month extension in BBRA 99.
     Section 632. Revised terms and conditions for extension of 
         Medicare Community Nursing Organization (CNO) 
         Demonstration Project
       Effective as if enacted with BBRA99, the provision would 
     eliminate the requirement that CNO capitated payments be 
     reduced to ensure budget neutrality. Through December 2001, 
     the projects would operate under the same terms and 
     conditions applicable during 1999, but with modification to 
     the capitation rates. From October 1, 2000, through December 
     31, 2000, the capitation rates would be adjusted for 
     inflation since 1999 and for changes in service packages, but 
     reduced by 10 percent for in projects in Arizona, Minnesota, 
     and Illinois and by 15 percent in New York. In 2001, the 
     rates would be determined by actuarially adjusting the rates 
     in the prior period for inflation, utilization, and changes 
     to the service package. Adjustments would be made to case 
     management fees for certain frail enrollees, and requirements 
     would be imposed to create greater uniformity in clinical 
     features among participating sites and to improve quality and 
     enrollee satisfaction.
       By July 1, 2001, the Secretary would be required to submit 
     to the House Committees on Ways and Means and Commerce and 
     the Senate Committee on Finance a report evaluating the 
     projects for the period July 1997 through December 1999 and 
     for the extension period after September 30, 2000. A final 
     report would be required by July 1, 2002. The provision would 
     require certain methods to be used to compare spending per 
     beneficiary under the projects.
     Section 633. Extension of Medicare municipal health services 
         demonstration projects
       The provision would extend the Medicare municipal health 
     services demonstration projects for 2 additional years, 
     through December 31, 2004.
     Section 634. Service area expansion for medicare cost 
         contracts during transition period
       This provision would allow service area expansion for 
     Medicare cost contracts, if the request was submitted to the 
     Secretary before September 1, 2003.

                          TITLE VII--MEDICAID

     Section 701. DSH payments
       (a) Modifications to DSH allotments
       For FY2001, the provision would set each state's DSH 
     allotment equal to its allotment for FY2000 increased by the 
     percentage change in the consumer price index for that year, 
     subject to a ceiling that would be equal to 12% of that 
     state's total medical assistance payments in that year.
       For FY2002, the provision would set each state's DSH 
     allotment equal to its allotment for 2001 as determined 
     above, increased by the percentage change in the consumer 
     price index for FY2001, subject to a ceiling equal to 12% of 
     that state's total medical assistance payments in that year.
       For extremely low DSH states, states whose FY1999 federal 
     and state DSH expenditures (as reported to HCFA on August 31, 
     2000) are greater than zero but less than one percent of the 
     state's total medical assistance expenditures during that 
     fiscal year, the DSH allotments for FY2001 would be equal to 
     1 percent of the state's total amount of expenditures under 
     their plan for such assistance during that fiscal year. For 
     subsequent fiscal years, the allotments for extremely low DSH 
     states would be equal to their allotment for the previous 
     year, increased by the percentage change in the consumer 
     price index for the previous year, subject to a ceiling of 
     12% of that state's total medical assistance payments in that 
     year.
       Effective on the date that the final regulation for 
     Medicaid upper payment limits is published in the Federal 
     Register.
       (b) Assuring identification of Medicaid managed care 
           patients
       Effective for Medicaid managed care contracts in effect on 
     January 1, 2001, the provision would clarify that Medicaid 
     enrollees of managed care organizations and primary care case 
     management organizations are to be included for the purposes 
     of calculating the Medicaid inpatient utilization rate and 
     the low-income utilization rate. Also effective January 1, 
     2001, states must include in their MCO contracts information 
     that allows the state to determine which hospital services 
     are provided to Medicaid beneficiaries through managed care, 
     and would also require states to include a sponsorship code 
     for the managed care entity on the Medicaid beneficiary's 
     identification card.
       (c) Application of Medicaid DSH transition rule to public 
           hospitals in all states
       The provision would revise BBA97, as modified by BBRA 99, 
     so that the 175% hospital-specific limit, formerly applied 
     only to certain public hospitals in California, applies to 
     qualifying public hospitals in all states. The higher limit 
     would apply for two state fiscal years beginning on the first 
     day of the state fiscal year that begins after September 30, 
     2002 and ends on the last day of the succeeding state fiscal 
     year. Hospitals that would qualify for the higher hospital-
     specific limit would be those owned or operated by a state 
     and meet the minimum federal requirements for 
     disproportionate share hospitals. The permanent ceiling for 
     California would not be affected.
       For states operating under waivers approved under section 
     1115 of the Social Security Act, increased payments for 
     public hospitals under this provision would be included in 
     the baseline expenditure limit for the purposes of 
     determining budget neutrality.
       (d) Assistance for certain public hospitals
       The provision would provide additional funds for certain 
     public hospitals that are: owned or operated by a state (or 
     by an instrumentality or unit of government within a state); 
     are not receiving DSH payments as of October 1, 2000; and 
     have a low-income utilization rate in excess of 65% as of the 
     same date. Funds are provided in addition to the DSH 
     allotment for any state with eligible hospitals and the total 
     for all states cannot exceed the following amounts: $15 
     million for FY 2002; $176 million for 2003; $269 million for 
     2004; $330 million for 2005; and for FY 2006 and each fiscal 
     year thereafter; $375 million.
       (e) DSH payment accountability standards
       The provision would require the Secretary to implement 
     accountability standards to ensure that DSH payments are used 
     to reimburse States and hospitals that are eligible for such 
     payments and are otherwise in accordance with Medicaid 
     statutory requirements.
     Section 702. New prospective payment system for federally-
         qualified health centers and rural health clinics
       The provision would create a new Medicaid prospective 
     payment system for federally qualified health centers (FQHCs) 
     and rural

[[Page H11062]]

     health centers (RHCs) beginning in FY2001. In FY2001 existing 
     FQHCs and RHCs would be paid per visit payments equal to 100% 
     of the average costs incurred during 1999 and 2000 adjusted 
     to take into account any increase or decrease in the scope of 
     services furnished. For entities first qualifying as FQHCs or 
     RHCs after 2000, the per visit payments would begin in the 
     first year that the center or clinic attains qualification 
     and would be based on 100% of the costs incurred during that 
     year based on the rates established for similar centers or 
     clinics with similar caseloads in the same adjacent 
     geographic area. In the absence of such similar centers or 
     clinics, the methodology would be based on that used for 
     developing rates for established FQHCs or RHCs or a 
     methodology or reasonable specifications as established by 
     the Secretary. For each fiscal year thereafter, per visit 
     payments for all FQHCs and RHCs would be equal to amounts for 
     the preceding fiscal year increased by the percentage 
     increase in the Medicare Economic Index applicable to primary 
     care services for that fiscal year, and adjusted for any 
     increase or decrease in the scope of services furnished 
     during that fiscal year. In managed care contracts, States 
     must make supplemental payments to the center or clinic that 
     would be equal to the difference between contracted amounts 
     and the cost-based amounts. Those payments would be paid on a 
     schedule mutually agreed to by the State and the FQHC or RHC. 
     Alternative payment methods would be permitted only when 
     payments are at least equal to amounts otherwise provided.
       The provision would also direct the Comptroller General to 
     provide for a study on how to rebase or refine cost payment 
     methods for the services of FQHCs and RHCs. The report would 
     be due to Congress no later than 4 years after the date of 
     enactment.
     Section 703. Streamlined approval of continued state-wide 
         1115 Medicaid waivers
       The provision would define the process for submitting 
     requests for and receiving extensions of Medicaid 
     demonstration waivers authorized under Section 1115 of the 
     Social Security Act which have already received initial 3-
     year extensions. It would require each state requesting such 
     an extension to submit an application at least 120 days prior 
     to the expiration date of the existing waiver. No later than 
     45 days after the Secretary receives such application, the 
     Secretary would be required to notify the State if she 
     intends to review the existing terms and conditions of the 
     project and would inform the State of proposed changes in the 
     terms and conditions of the waiver. If the Secretary fails to 
     provide such notification, the request would be deemed 
     approved. During the 30-day period beginning after the 
     Secretary provides the proposed terms and conditions to the 
     state, those terms and conditions would be negotiated. No 
     later than 120 days after the date that the request for 
     extension was submitted (or such later date as agreed to by 
     the chief executive officer of the State) the Secretary would 
     be required to approve the application subject to the agreed 
     upon terms and conditions or, in the absence of an agreement, 
     such terms and conditions that are determined by the 
     Secretary to be reasonably consistent with the overall 
     objective of the waiver, or disapprove the application. If 
     the waiver is not approved or disapproved during this period, 
     the request would be deemed approved in the terms and 
     conditions as have been agreed to (if any) by the Secretary 
     and the State. Approvals would be for periods not to exceed 3 
     years and would be subject to the final reporting and 
     evaluation requirements in current law.
     Section 704. Medicaid county-organized health systems
       The provision would allow the current exemption for certain 
     Health Insuring Organizations (HIOs) from certain Medicaid 
     HMO contracting requirements to apply as long as no more than 
     14% of all Medicaid beneficiaries in the state are enrolled 
     in those HIOs. This provision would be effective as if 
     included in the enactment of the Consolidated Omnibus Budget 
     Reconciliation Act of 1985.
     Sec. 705. Deadline for issuance of final regulation relating 
         to Medicaid upper payment limits
       The provision would require the Secretary to issue final 
     regulations governing upper payment limits no later than 
     December 31, 2000. It also requires that the final regulation 
     establish a separate UPL for non-state-owned or operated 
     government facilities based on the proposed rule described 
     above.
       The provision also requires the final regulation to 
     stipulate a third set of rules governing the transition 
     period for certain states. This additional set of rules would 
     apply to states with payment arrangements approved or in 
     effect on or before October 1, 1992, or under which claims 
     for federal matching were paid on or before that date, and 
     for which such payments exceed the UPLs established under the 
     final regulation. For these states, a 6-year transition 
     period would apply, beginning with the period that begins on 
     the first state fiscal year that starts after September 30, 
     2002 and ends on September 30, 2008. For each year during the 
     transition period, applicable states must reduce excess 
     payments by 15%. Full compliance with final regulations is 
     required by October 1, 2008.
     Section 706. Alaska FMAP
       The provision would change the formula for calculating the 
     state percentage and thus the federal matching percentage for 
     Alaska for fiscal years 2001 through 2005. The state 
     percentage for Alaska would be calculated by using an 
     adjusted per capita income instead of the per capita income 
     generally used. The adjusted per capita income for Alaska 
     would be calculated as the three year average per capita 
     income for the state divided by 1.05.

         TITLE VIII--STATE CHILDREN'S HEALTH INSURANCE PROGRAM

     Section 801. Special rule for redistribution and availability 
         of unused fiscal year 1998 and 1999 SCHIP allotments
       The provision would establish a new method for distributing 
     unspent FY1998 and FY1999 allotments. States that use all 
     their SCHIP allotments (for each of those years) would 
     receive an amount equal to estimated spending in excess of 
     their original exhausted allotment. Each territory that 
     spends its original allotment would receive an amount that 
     bears the same ratio to 1.05% of the total amount available 
     for redistribution as the ratio of its original allotment to 
     the total allotment for all territories.
       States that do not use all their SCHIP allotment would 
     receive an amount equal to the total amount of unspent funds, 
     less amounts distributed to states that fully exhausted their 
     original allotments, multiplied by the ratio of a state's 
     unspent original allotment to the total amount of unspent 
     funds. States may use up to 10% of the retained FY1998 funds 
     for outreach activities.
       To calculate the amounts available for redistribution in 
     each formula described above, the Secretary would use amounts 
     reported by states not later than November 30 of the relevant 
     fiscal year on HCFA Form 64 or HCFA Form 21, as approved by 
     the Secretary. Redistributed funds would be available through 
     the end of FY2002.
     Section 802. Authority to pay Medicaid expansion SCHIP costs 
         from title XXI appropriation
       This provision provides a technical accounting 
     clarification requested by the Health Care Financing 
     Administration. It would authorize the payment of the costs 
     of SCHIP Medicaid expansions and costs of benefits provided 
     during periods of presumptive eligibility from the SCHIP 
     appropriation rather than from the Medicaid appropriation, 
     with a subsequent offset. In addition, the provision would 
     codify proposed rules regarding the order of payments for 
     benefits and administrative costs from state-specific SCHIP 
     allotments.

                       Title IX--OTHER PROVISIONS

                        Subtitle A--PACE Program

     Section 901. Extension of transition for current waivers
       The provision would permit the Secretary to continue to 
     operate the Program of All-Inclusive Care for the Elderly 
     (PACE) under waivers for a period of 36 months (rather than 
     24 months), and States may do so for 4 years (rather than 3 
     years). OBRA 86 required the Secretary to grant waivers of 
     certain Medicare and Medicaid requirements to not more than 
     10 public or non-profit private community-based organizations 
     to provide health and long-term care services on a capitated 
     basis to frail elderly persons at risk of 
     institutionalization. BBA 97 established PACE as a permanent 
     provider under Medicare and as a special benefit under 
     Medicaid.
     Section 902. Continuing of certain operating arrangements 
         permitted
       If prior to becoming a permanent component of Medicare, a 
     PACE demonstration project had contractual or other operating 
     arrangements that are not recognized under permanent program 
     regulations, the provision would require the Secretary, in 
     consultation with the state agency, to permit it to continue 
     under such arrangements as long as it is consistent with the 
     objectives of the PACE program.
     Section 903. Flexibility in exercising waiver authority
       The provision would enable the Secretary to exercise 
     authority to modify or waive Medicare or Medicaid 
     requirements to respond to the needs of PACE programs related 
     to employment and the use of community care physicians. The 
     Secretary must approve requests for such waivers within 90 
     days of the date the request for waiver is received.

   Subtitle B--Outreach to Eligible Low-Income Medicare Beneficiaries

     Section 911. Outreach on availability of medicare cost-
         sharing assistance to eligible low-income Medicare 
         beneficiaries
       The provision would require the Commissioner of the Social 
     Security Administration to conduct outreach efforts to 
     identify individuals who may be eligible for Medicaid payment 
     of Medicare cost sharing and to notify these persons of the 
     availability of such assistance. The Commissioner would also 
     be required to furnish, at least annually, a list of such 
     individuals who reside in each state to that state's agency 
     responsible for administering the Medicaid program as well as 
     to any other appropriate state agency. The list should 
     include the name and address, and whether such individuals 
     have experienced reductions in Social Security benefits. The 
     provision would also require the General Accounting Office to 
     conduct a study of the impact of the outreach activities of 
     the Commissioner to submit to Congress no later

[[Page H11063]]

     than 18 months after such outreach begins. The provision 
     would be effective one year after date of enactment.

           Subtitle C--Maternal and Child Health Block Grant

     Section 921. Increase in authorization of appropriations for 
         the maternal and child health services block grant
       The provision would increase the authorization of 
     appropriations for the Maternal and Child Health Services 
     Block Grant under Title V from $705,000,000 to $850,000,000 
     for fiscal year 2001 and each fiscal year thereafter.

                          Subtitle D--Diabetes

     Section 931. Increase in appropriations for special diabetes 
         programs for type I diabetes and Indians
       The provision would extend for 1 year, to FY2003, the 
     authority for grants to be made for both the Special Diabetes 
     Program for Type I Diabetes and for the Special Diabetes 
     Programs for Indians under the Public Health Service Act. The 
     provision would also expand funding available for these 
     programs. For each grant program, the provision would 
     increase total funding to $100 million each for FY2001, 
     FY2002 and FY2003. For FY2001 and FY2002, $30 million of the 
     $100 million for each program would be transferred from SCHIP 
     as set forth in the Balanced Budget Act of 1997; the 
     remaining $70 million would be drawn from the Treasury out of 
     funds not otherwise appropriated. In FY2003, the entire $100 
     million would be drawn from the Treasury out of funds not 
     otherwise appropriated. In addition, the provision would 
     extend the due date on final evaluation reports for these two 
     grant programs from January 1, 2002 to January 1, 2003.
     Section 932. Appropriations for Ricky Ray Hemophilia Relief 
         Fund
       This provision provides for a direct appropriation of $475 
     million for FY 2001. Funds would be available until expended.


                   pain relief promotion act of 2000

       The conference agreement would enact the provisions of H.R. 
     5544, as introduced on October 25, 2000. The text of that 
     bill follow:

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Pain Relief Promotion Act of 
     2000.''

     SECTION 2. FINDINGS.

       Congress finds that--
       (1) in the first decade of the new millennium there should 
     be a new emphasis on pain management and palliative care;
       (2) the use of certain narcotics and other drugs or 
     substances with a potential for abuse is strictly regulated 
     under the Controlled Substances Act;
       (3) the dispensing and distribution of certain controlled 
     substances by properly registered practitioners for 
     legitimate medical purposes are permitted under the 
     Controlled Substances Act and implementing regulations;
       (4) the dispensing or distribution of certain controlled 
     substances for the purpose of relieving pain and discomfort 
     even if it increases the risk of death is a legitimate 
     medical purpose and is permissible under the Controlled 
     Substances Act;
       (5) inadequate treatment of pain, especially for chronic 
     diseases and conditions, irreversible diseases such as 
     cancer, and end-of-life care, is a serious public health 
     problem affecting hundreds of thousands of patients every 
     year; physicians should not hesitate to dispense or 
     distribute controlled substances when medically indicated for 
     these conditions; and
       (6) for the reasons set forth in section 101 of the 
     Controlled Substances Act (21 U.S.C. 801), the dispensing and 
     distribution of controlled substances for any purpose affect 
     interstate commerce.

         TITLE I--PROMOTING PAIN MANAGEMENT AND PALLIATIVE CARE

     SEC. 101. ACTIVITIES OF AGENCY FOR HEALTHCARE RESEARCH AND 
                   QUALITY.

       Part A of title IX of the Public Health Service Act (42 
     U.S.C. 299 et seq.) is amended by adding at the end the 
     following:

     SEC. 903. PROGRAM FOR PAIN MANAGEMENT AND PALLIATIVE CARE 
                   RESEARCH AND QUALITY.

       (a) In General.--Subject to subsections (e) and (f) of 
     section 902, the Director shall carry out a program to 
     accomplish the following:
       (1) Promote and advance scientific understanding of pain 
     management and palliative care.
       (2) Collect and disseminate protocols and evidence-based 
     practices regarding, pain management and palliative care, 
     with priority given to pain management for terminally ill 
     patients, and make such information available to public and 
     private health care programs and providers, health 
     professions schools, and hospices, and to the general public.
       (b) Definition.--In this section, the term ``pain 
     management and palliative care'' means--
       (1) the active, total care of patients whose disease or 
     medical condition is not responsive to curative treatment or 
     whose prognosis is limited due to progressive, far-advanced 
     disease; and
       (2) the evaluation, diagnosis, treatment, and management of 
     primary and secondary pain, whether acute, chronic, 
     persistent, intractable, or associated with the end of life;

     the purpose of which is to diagnose and alleviate pain and 
     other distressing signs and symptoms and to enhance the 
     quality of life, not to hasten or postpone death.

     SEC. 102. ACTIVITIES OF HEALTH RESOURCES AND SERVICES 
                   ADMINISTRATION.

       (a) In General.--Part D of title VII of the Public Health 
     Service Act (42 U.S.C. 294 et seq.) is amended--
       (1) by redesignating sections 754 through 757 as sections 
     755 through 758, respectively; and
       (2) by inserting after section 753 the following:

     SEC. 754. PROGRAM FOR EDUCATION AND TRAINING IN PAIN 
                   MANAGEMENT AND PALLIATIVE CARE.

       (a) In General.--The Secretary, in consultation with the 
     Director of the Agency for Healthcare Research and Quality, 
     may award grants, cooperative agreements, and contracts to 
     health professions schools, hospices, and other public and 
     private entities for the development and implementation of 
     programs to provide education and training to health care 
     professionals in pain management and palliative care.
       (b) Priority.--In making awards under subsection (a), the 
     Secretary shall give priority to awards for the 
     implementation of programs under such subsection.
       (c) Certain Topics.--An award may be made under subsection 
     (a) only if the applicant for the award agrees that the 
     program to be carried out with the award will include 
     information and education on--
       (1) means for diagnosing and alleviating pain and other 
     distressing signs and symptoms of patients, especially 
     terminally ill patients, including the medically appropriate 
     use of controlled substances;
       (2) applicable laws on controlled substances, including 
     laws permitting health care professionals to dispense or 
     administer controlled substances as needed to relieve pain 
     even in cases where such efforts may unintentionally increase 
     the risk of death; and
       (3) recent findings, developments, and improvements in the 
     provision of pain management and palliative care.
       (d) Program Sites.--Education and training under subsection 
     (a) may be provided at or through health professions schools, 
     residency training programs and other graduate programs in 
     the health professions, entities that provide continuing 
     medical education, hospices, and such other programs or sites 
     as the Secretary determines to be appropriate.
       (e) Evaluation of Programs.--The Secretary shall (directly 
     or through grants or contracts) provide for the evaluation of 
     programs implemented under subsection (a) in order to 
     determine the effect of such programs on knowledge and 
     practice regarding pain management and palliative care.
       (f) Peer Review Groups.--In carrying out section 799(f) 
     with respect to this section, the Secretary shall ensure that 
     the membership of each peer review group involved includes 
     individuals with expertise and experience in pain management 
     and palliative care for the population of patients whose 
     needs are to be served by the program.
       (g) Definition.--In this section, the term ``pain 
     management and palliative care'' means--
       (1) the active, total care of patients whose disease or 
     medical condition is not responsive to curative treatment or 
     whose prognosis is limited due to progressive, far-advanced 
     disease; and
       (2) the evaluation, diagnosis, treatment, and management of 
     primary and secondary pain, whether acute, chronic, 
     persistent, intractable, or associated with the end of life:

     the purpose of which is to diagnose and alleviate pain and 
     other distressing signs and symptoms and to enhance the 
     quality of life, not to hasten or postpone death.
       (b) Authorization of Appropriations; Allocation.--
       (1) In general.--Section 758 of the Public Health Services 
     Act (as redesignated by subsection (a)(1) of this section) is 
     amended, in subsection (b)(1)(C), by striking ``sections 753, 
     754, and 755'' and inserting ``sections 753, 754, 755, and 
     756''.
       (2) Amount.--With respect to section 758 of the Public 
     Health Service Act (as redesignated by subsection (a)(1) of 
     this section), the dollar amount specified in subsection 
     (b)(1)(C) of such section is deemed to be increased by 
     $5,000,000.

     SEC. 103. EFFECTIVE DATE.

       The amendments made by this title shall take effect on the 
     date of enactment of this Act.

 TITLE II--USE OF CONTROLLED SUBSTANCES CONSISTENT WITH THE CONTROLLED 
                             SUBSTANCES ACT

     SEC. 201. REINFORCING EXISTING STANDARD FOR LEGITIMATE USE OF 
                   CONTROLLED SUBSTANCES.

       (a) In General.--Section 303 of the Controlled Substances 
     Act (21 U.S.C. 823) is amended by adding at the end the 
     following:
       (i)(1) For purposes of this Act and any regulations to 
     implement this Act, alleviating pain or discomfort in the 
     usual course of professional practice is a legitimate medical 
     purpose for the dispensing, distributing, or administering of 
     a controlled substance that is consistent with public health 
     and safety, even if the use of such a substance may increase 
     the risk of death. Nothing in this section authorizes 
     intentionally dispensing, distributing, or administering a 
     controlled substance for the purpose of causing death or 
     assisting another person in causing death.
       (2)(A) Notwithstanding any other provision of this Act, in 
     determining whether a registration is consistent with the 
     public interest under this Act, the Attorney General shall 
     give no force and effect to State law authorizing or 
     permitting assisted suicide or euthanasia.
       (B) Paragraph (2) applies only to conduct occurring after 
     the date of enactment of this subsection.
       (3) Nothing in this subsection shall be construed to alter 
     the roles of the Federal and State governments in regulating 
     the practice of medicine. Regardless of whether the Attorney 
     General determines pursuant to this section that the 
     registration of a practitioner is inconsistent with

[[Page H11064]]

     the public interest, it remains solely within the discretion 
     of State authorities to determine whether action should be 
     taken with respect to the State professional license of the 
     practitioner or State prescribing privileges.
       (4) Nothing in the Pain Relief Promotion Act of 2000 
     (including the amendments made by such Act) shall be 
     construed--
       (A) to modify the Federal requirements that a controlled 
     substance be dispensed only for a legitimate medical purpose 
     pursuant to paragraph (1); or
       (B) to provide the Attorney General with the authority to 
     issue national standards for pain management and palliative 
     care clinical practice, research, or quality;

     except that the Attorney General may take such other actions 
     as may be necessary to enforce this Act.
       (b) Pain Relief.--Section 304(c) of the Controlled 
     Substances Act (21 U.S.C. 824(c)) is amended--
       (1) by striking ``(c) Before'' and inserting the following:
       (c) Procedures.--
       (1) Order to show cause.--Before; and
       (2) by adding at the end the following:
       (2) Burden of proof.--At any proceeding under paragraph 
     (1), where the order to show cause is based on the alleged 
     intentions of the applicant or registrant to cause or assist 
     in causing death, and the practitioner claims a defense under 
     paragraph (1) of section 303(i), the Attorney General shall 
     have the burden of proving, by clear and convincing evidence, 
     that the practitioner's intent was to dispense, distribute, 
     or administer a controlled substance for the purpose of 
     causing death or assisting another person in causing death. 
     In meeting such burden, it shall not be sufficient to prove 
     that the applicant or registrant knew that the use of 
     controlled substance may increase the risk of death.

     SEC. 202. EDUCATION AND TRAINING PROGRAMS.

       Section 502(a) of the Controlled Substances Act (21 U.S.C. 
     872(a) is amended--
       (1) by striking ``and'' at the end of paragraph (5);
       (2) by striking the period at the end of paragraph (6) and 
     inserting ``; and'' and
       (3) by adding at the end the following:
       (7) educational and training programs for Federal, State, 
     and local personnel, incorporating recommendations, subject 
     to the provisions of subsection (e) and (f) of section 902 of 
     the Public Health Service Act, by the Secretary of Health and 
     Human Services, on the means by which investigation and 
     enforcement actions by law enforcement personnel may better 
     accommodate the necessary and legitimate use of controlled 
     substances in pain management and palliative care.

     Nothing in this subsection shall be construed to alter the 
     roles of the Federal and State governments in regulating the 
     practice of medicine.

     SEC. 203. FUNDING AUTHORITY.

       Notwithstanding any other provision of law, the operation 
     of the diversion control fee account program of the Drug 
     Enforcement Administration shall be construed to include 
     carrying out section 303(i) of the Controlled Substances Act 
     (21 U.S.C. 823(i)), as added by this Act, and subsections 
     (a)(4) and (c)(2) of section 304 of the Controlled Substances 
     Act (21 U.S.C. 824), as amended by this Act.

     SEC. 204. EFFECTIVE DATE.

       The amendments made by this title shall take effect on the 
     date of enactment of this Act.


               small business reauthorization act of 2000

       The conference agreement would enact the provisions of H.R. 
     5545, as introduced on October 25, 2000. The text of that 
     bill follows:

     SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Small 
     Business Reauthorization Act of 2000''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.

          TITLE I--SMALL BUSINESS INNOVATION RESEARCH PROGRAM

Sec. 101. Short title.
Sec. 102. Findings.
Sec. 103. Extension of SBIR program.
Sec. 104. Annual report.
Sec. 105. Third phase assistance.
Sec. 106. Report on programs for annual performance plan.
Sec. 107. Output and outcome data.
Sec. 108. National Research Council reports.
Sec. 109. Federal agency expenditures for the SBIR program.
Sec. 110. Policy directive modifications.
Sec. 111. Federal and State technology partnership program.
Sec. 112. Mentoring networks.
Sec. 113. Simplified reporting requirements.
Sec. 114. Rural outreach program extension.

                    TITLE II--BUSINESS LOAN PROGRAMS

Sec. 201. Short title.
Sec. 202. Levels of participation.
Sec. 203. Loan amounts.
Sec. 204. Interest on defaulted loans.
Sec. 205. Prepayment of loans.
Sec. 206. Guarantee fees.
Sec. 207. Lease terms.
Sec. 208. Appraisals for loans secured by real property.
Sec. 209. Sale of guaranteed loans made for export purposes.
Sec. 210. Microloan program.

            TITLE III--CERTIFIED DEVELOPMENT COMPANY PROGRAM

Sec. 301. Short title.
Sec. 302. Women-owned businesses.
Sec. 303. Maximum debenture size.
Sec. 304. Fees.
Sec. 305. Premier certified lenders program.
Sec. 306. Sale of certain defaulted loans.
Sec. 307. Loan liquidation.

   TITLE IV--CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT OF 1958

Sec. 401. Short title.
Sec. 402. Definitions.
Sec. 403. Investment in small business investment companies.
Sec. 404. Subsidy fees.
Sec. 405. Distributions.
Sec. 406. Conforming amendment.

          TITLE V--REAUTHORIZATION OF SMALL BUSINESS PROGRAMS

Sec. 501. Short title.
Sec. 502. Reauthorization of small business programs.
Sec. 503. Additional reauthorizations.
Sec. 504. Cosponsorship.

                       TITLE VI--HUBZONE PROGRAM

                 Subtitle A--HUBZones in Native America

Sec. 601. Short title.
Sec. 602. HUBZone small business concern.
Sec. 603. Qualified HUBZone small business concern.
Sec. 604. Other definitions.

                  Subtitle B--Other HUBZone Provisions

Sec. 611. Definitions.
Sec. 612. Eligible contracts.
Sec. 613. HUBZone redesignated areas.
Sec. 614. Community development.
Sec. 615. Reference corrections.

      TITLE VII--NATIONAL WOMEN'S BUSINESS COUNCIL REAUTHORIZATION

Sec. 701. Short title.
Sec. 702. Membership of the Council.
Sec. 703. Repeal of procurement project.
Sec. 704. Studies and other research.
Sec. 705. Authorization of appropriations.

                  TITLE VIII--MISCELLANEOUS PROVISIONS

Sec. 801. Loan application processing.
Sec. 802. Application of ownership requirements.
Sec. 803. Subcontracting preference for veterans.
Sec. 804. Small Business Development Center Program funding.
Sec. 805. Surety bonds.
Sec. 806. Size standards.
Sec. 807. Native Hawaiian organizations under section 8(a).
Sec. 808. National Veterans Business Development Corporation 
              correction.
Sec. 809. Private sector resources for SCORE.
Sec. 810. Contract data collection.
Sec. 811. Procurement program for women-owned small business concerns.

        TITLE IX--COMMUNITY RENEWAL AND NEW MARKETS INITIATIVES

Sec. 901. New markets venture capital program.
Sec. 902. BusinessLINC grants and cooperative agreements.
          TITLE I--SMALL BUSINESS INNOVATION RESEARCH PROGRAM

     SECTION 101. SHORT TITLE.

       (a) Short Title.--This title may be cited as the ``Small 
     Business Innovation Research Program Reauthorization Act of 
     2000''.

     SEC. 102. FINDINGS.

       Congress finds that--
       (1) the small business innovation research program 
     established under the Small Business Innovation Development 
     Act of 1982, and reauthorized by the Small Business Research 
     and Development Enhancement Act of 1992 (in this title 
     referred to as the ``SBIR program'') is highly successful in 
     involving small businesses in federally funded research and 
     development;
       (2) the SBIR program made the cost-effective and unique 
     research and development capabilities possessed by the small 
     businesses of the Nation available to Federal agencies and 
     departments;
       (3) the innovative goods and services developed by small 
     businesses that participated in the SBIR program have 
     produced innovations of critical importance in a wide variety 
     of high-technology fields, including biology, medicine, 
     education, and defense;
       (4) the SBIR program is a catalyst in the promotion of 
     research and development, the commercialization of innovative 
     technology, the development of new products and services, and 
     the continued excellence of this Nation's high-technology 
     industries; and
       (5) the continuation of the SBIR program will provide 
     expanded opportunities for one of the Nation's vital 
     resources, its small businesses, will foster invention, 
     research, and technology, will create jobs, and will increase 
     this Nation's competitiveness in international markets.

     SEC. 103. EXTENSION OF SBIR PROGRAM.

       Section 9(m) of the Small Business Act (15 U.S.C. 638(m)) 
     is amended to read as follows:
       ``(m) Termination.--The authorization to carry out the 
     Small Business Innovation Research Program established under 
     this section shall terminate on September 30, 2008.''.

     SEC. 104. ANNUAL REPORT.

       Section 9(b)(7) of the Small Business Act (15 U.S.C. 
     638(b)(7)) is amended by striking ``and the Committee on 
     Small Business of the House of Representatives'' and 
     inserting ``, and to the Committee on Science and the 
     Committee on Small Business of the House of 
     Representatives,''.

     SEC. 105. THIRD PHASE ASSISTANCE.

       Section 9(e)(4)(C)(i) of the Small Business Act (15 U.S.C. 
     638(e)(4)(C)(i)) is amended by striking ``; and'' and 
     inserting ``; or''.

     SEC. 106. REPORT ON PROGRAMS FOR ANNUAL PERFORMANCE PLAN.

       Section 9(g) of the Small Business Act (15 U.S.C. 638(g)) 
     is amended--
       (1) in paragraph (7), by striking ``and'' at the end;
       (2) in paragraph (8), by striking the period at the end and 
     inserting a semicolon; and
       (3) by adding at the end the following:
       ``(9) include, as part of its annual performance plan as 
     required by subsections (a) and (b)

[[Page H11065]]

     of section 1115 of title 31, United States Code, a section on 
     its SBIR program, and shall submit such section to the 
     Committee on Small Business of the Senate, and the Committee 
     on Science and the Committee on Small Business of the House 
     of Representatives; and''.

     SEC. 107. OUTPUT AND OUTCOME DATA.

       (a) Collection.--Section 9(g) of the Small Business Act (15 
     U.S.C. 638(g)), as amended by section 106 of this Act, is 
     further amended by adding at the end the following:
       ``(10) collect, and maintain in a common format in 
     accordance with subsection (v), such information from 
     awardees as is necessary to assess the SBIR program, 
     including information necessary to maintain the database 
     described in subsection (k).''.
       (b) Report to Congress.--Section 9(b)(7) of the Small 
     Business Act (15 U.S.C. 638(b)(7)), as amended by section 104 
     of this Act, is further amended by inserting before the 
     period at the end ``, including the data on output and 
     outcomes collected pursuant to subsections (g)(10) and 
     (o)(9), and a description of the extent to which Federal 
     agencies are providing in a timely manner information needed 
     to maintain the database described in subsection (k)''.
       (c) Database.--Section 9(k) of the Small Business Act (15 
     U.S.C. 638(k)) is amended to read as follows:
       ``(k) Database.--
       ``(1) Public database.--Not later than 180 days after the 
     date of enactment of the Small Business Innovation Research 
     Program Reauthorization Act of 2000, the Administrator shall 
     develop, maintain, and make available to the public a 
     searchable, up-to-date, electronic database that includes--
       ``(A) the name, size, location, and an identifying number 
     assigned by the Administrator, of each small business concern 
     that has received a first phase or second phase SBIR award 
     from a Federal agency;
       ``(B) a description of each first phase or second phase 
     SBIR award received by that small business concern, 
     including--
       ``(i) an abstract of the project funded by the award, 
     excluding any proprietary information so identified by the 
     small business concern;
       ``(ii) the Federal agency making the award; and
       ``(iii) the date and amount of the award;
       ``(C) an identification of any business concern or 
     subsidiary established for the commercial application of a 
     product or service for which an SBIR award is made; and
       ``(D) information regarding mentors and Mentoring Networks, 
     as required by section 35(d).
       ``(2) Government database.--Not later than 180 days after 
     the date of enactment of the Small Business Innovation 
     Research Program Reauthorization Act of 2000, the 
     Administrator, in consultation with Federal agencies required 
     to have an SBIR program pursuant to subsection (f)(1), shall 
     develop and maintain a database to be used solely for SBIR 
     program evaluation that--
       ``(A) contains for each second phase award made by a 
     Federal agency--
       ``(i) information collected in accordance with paragraph 
     (3) on revenue from the sale of new products or services 
     resulting from the research conducted under the award;
       ``(ii) information collected in accordance with paragraph 
     (3) on additional investment from any source, other than 
     first phase or second phase SBIR or STTR awards, to further 
     the research and development conducted under the award; and
       ``(iii) any other information received in connection with 
     the award that the Administrator, in conjunction with the 
     SBIR program managers of Federal agencies, considers relevant 
     and appropriate;
       ``(B) includes any narrative information that a small 
     business concern receiving a second phase award voluntarily 
     submits to further describe the outputs and outcomes of its 
     awards;
       ``(C) includes for each applicant for a first phase or 
     second phase award that does not receive such an award--
       ``(i) the name, size, and location, and an identifying 
     number assigned by the Administration;
       ``(ii) an abstract of the project; and
       ``(iii) the Federal agency to which the application was 
     made;
       ``(D) includes any other data collected by or available to 
     any Federal agency that such agency considers may be useful 
     for SBIR program evaluation; and
       ``(E) is available for use solely for program evaluation 
     purposes by the Federal Government or, in accordance with 
     policy directives issued by the Administration, by other 
     authorized persons who are subject to a use and nondisclosure 
     agreement with the Federal Government covering the use of the 
     database.
       ``(3) Updating information for database.--
       ``(A) In general.--A small business concern applying for a 
     second phase award under this section shall be required to 
     update information in the database established under this 
     subsection for any prior second phase award received by that 
     small business concern. In complying with this paragraph, a 
     small business concern may apportion sales or additional 
     investment information relating to more than one second phase 
     award among those awards, if it notes the apportionment for 
     each award.
       ``(B) Annual updates upon termination.--A small business 
     concern receiving a second phase award under this section 
     shall--
       ``(i) update information in the database concerning that 
     award at the termination of the award period; and
       ``(ii) be requested to voluntarily update such information 
     annually thereafter for a period of 5 years.
       ``(4) Protection of information.--Information provided 
     under paragraph (2) shall be considered privileged and 
     confidential and not subject to disclosure pursuant to 
     section 552 of title 5, United States Code.
       ``(5) Rule of construction.--Inclusion of information in 
     the database under this subsection shall not be considered to 
     be publication for purposes of subsection (a) or (b) of 
     section 102 of title 35, United States Code.''.

     SEC. 108. NATIONAL RESEARCH COUNCIL REPORTS.

       (a) Study and Recommendations.--The head of each agency 
     with a budget of more than $50,000,000 for its SBIR program 
     for fiscal year 1999, in consultation with the Small Business 
     Administration, shall, not later than 6 months after the date 
     of enactment of this Act, cooperatively enter into an 
     agreement with the National Academy of Sciences for the 
     National Research Council to--
       (1) conduct a comprehensive study of how the SBIR program 
     has stimulated technological innovation and used small 
     businesses to meet Federal research and development needs, 
     including--
       (A) a review of the value to the Federal research agencies 
     of the research projects being conducted under the SBIR 
     program, and of the quality of research being conducted by 
     small businesses participating under the program, including a 
     comparison of the value of projects conducted under the SBIR 
     program to those funded by other Federal research and 
     development expenditures;
       (B) to the extent practicable, an evaluation of the 
     economic benefits achieved by the SBIR program, including the 
     economic rate of return, and a comparison of the economic 
     benefits, including the economic rate of return, achieved by 
     the SBIR program with the economic benefits, including the 
     economic rate of return, of other Federal research and 
     development expenditures;
       (C) an evaluation of the noneconomic benefits achieved by 
     the SBIR program over the life of the program;
       (D) a comparison of the allocation for fiscal year 2000 of 
     Federal research and development funds to small businesses 
     with such allocation for fiscal year 1983, and an analysis of 
     the factors that have contributed to such allocation; and
       (E) an analysis of whether Federal agencies, in fulfilling 
     their procurement needs, are making sufficient effort to use 
     small businesses that have completed a second phase award 
     under the SBIR program; and
       (2) make recommendations with respect to--
       (A) measures of outcomes for strategic plans submitted 
     under section 306 of title 5, United States Code, and 
     performance plans submitted under section 1115 of title 31, 
     United States Code, of each Federal agency participating in 
     the SBIR program;
       (B) whether companies who can demonstrate project 
     feasibility, but who have not received a first phase award, 
     should be eligible for second phase awards, and the potential 
     impact of such awards on the competitive selection process of 
     the program;
       (C) whether the Federal Government should be permitted to 
     recoup some or all of its expenses if a controlling interest 
     in a company receiving an SBIR award is sold to a foreign 
     company or to a company that is not a small business concern;
       (D) how to increase the use by the Federal Government in 
     its programs and procurements of technology-oriented small 
     businesses; and
       (E) improvements to the SBIR program, if any are considered 
     appropriate.
       (b) Participation by Small Business.--
       (1) In general.--In a manner consistent with law and with 
     National Research Council study guidelines and procedures, 
     knowledgeable individuals from the small business community 
     with experience in the SBIR program shall be included--
       (A) in any panel established by the National Research 
     Council for the purpose of performing the study conducted 
     under this section; and
       (B) among those who are asked by the National Research 
     Council to peer review the study.
       (2) Consultation.--To ensure that the concerns of small 
     business are appropriately considered under this subsection, 
     the National Research Council shall consult with and consider 
     the views of the Office of Technology and the Office of 
     Advocacy of the Small Business Administration and other 
     interested parties, including entities, organizations, and 
     individuals actively engaged in enhancing or developing the 
     technological capabilities of small business concerns.
       (c) Progress Reports.--The National Research Council shall 
     provide semiannual progress reports on the study conducted 
     under this section to the Committee on Science and the 
     Committee on Small Business of the House of Representatives, 
     and to the Committee on Small Business of the Senate.
       (d) Report.--The National Research Council shall transmit 
     to the heads of agencies entering into an agreement under 
     this section and to the Committee on Science and the 
     Committee on Small Business of the House of Representatives, 
     and to the Committee on Small Business of the Senate--
       (1) not later than 3 years after the date of enactment of 
     this Act, a report including the results of the study 
     conducted under subsection (a)(1) and recommendations made 
     under subsection (a)(2); and
       (2) not later than 6 years after that date of enactment, an 
     update of such report.

     SEC. 109. FEDERAL AGENCY EXPENDITURES FOR THE SBIR PROGRAM.

       Section 9(i) of the Small Business Act (15 U.S.C. 638(i)) 
     is amended--
       (1) by striking ``(i) Each Federal'' and inserting the 
     following:
       ``(i) Annual Reporting.--
       ``(1) In general.--Each Federal''; and
       (2) by adding at the end the following:
       ``(2) Calculation of extramural budget.--

[[Page H11066]]

       ``(A) Methodology.--Not later than 4 months after the date 
     of enactment of each appropriations Act for a Federal agency 
     required by this section to have an SBIR program, the Federal 
     agency shall submit to the Administrator a report, which 
     shall include a description of the methodology used for 
     calculating the amount of the extramural budget of that 
     Federal agency.
       ``(B) Administrator's analysis.--The Administrator shall 
     include an analysis of the methodology received from each 
     Federal agency referred to in subparagraph (A) in the report 
     required by subsection (b)(7).''.

     SEC. 110. POLICY DIRECTIVE MODIFICATIONS.

       Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) 
     is amended by adding at the end the following:
       ``(3) Additional modifications.--Not later than 120 days 
     after the date of enactment of the Small Business Innovation 
     Research Program Reauthorization Act of 2000, the 
     Administrator shall modify the policy directives issued 
     pursuant to this subsection--
       ``(A) to clarify that the rights provided for under 
     paragraph (2)(A) apply to all Federal funding awards under 
     this section, including the first phase (as described in 
     subsection (e)(4)(A)), the second phase (as described in 
     subsection (e)(4)(B)), and the third phase (as described in 
     subsection (e)(4)(C));
       ``(B) to provide for the requirement of a succinct 
     commercialization plan with each application for a second 
     phase award that is moving toward commercialization;
       ``(C) to require agencies to report to the Administration, 
     not less frequently than annually, all instances in which an 
     agency pursued research, development, or production of a 
     technology developed by a small business concern using an 
     award made under the SBIR program of that agency, and 
     determined that it was not practicable to enter into a 
     follow-on non-SBIR program funding agreement with the small 
     business concern, which report shall include, at a minimum--
       ``(i) the reasons why the follow-on funding agreement with 
     the small business concern was not practicable;
       ``(ii) the identity of the entity with which the agency 
     contracted to perform the research, development, or 
     production; and
       ``(iii) a description of the type of funding agreement 
     under which the research, development, or production was 
     obtained; and
       ``(D) to implement subsection (v), including establishing 
     standardized procedures for the provision of information 
     pursuant to subsection (k)(3).''.

     SEC. 111. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM.

       (a) Findings.--Congress finds that--
       (1) programs to foster economic development among small 
     high-technology firms vary widely among the States;
       (2) States that do not aggressively support the development 
     of small high-technology firms, including participation by 
     small business concerns in the SBIR program, are at a 
     competitive disadvantage in establishing a business climate 
     that is conducive to technology development; and
       (3) building stronger national, State, and local support 
     for science and technology research in these disadvantaged 
     States will expand economic opportunities in the United 
     States, create jobs, and increase the competitiveness of the 
     United States in the world market.
       (b) Federal and State Technology Partnership Program.--The 
     Small Business Act (15 U.S.C. 631 et seq.) is amended--
       (1) by redesignating section 34 as section 36; and
       (2) by inserting after section 33 the following:

     ``SEC. 34. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM.

       ``(a) Definitions.--In this section and section 35, the 
     following definitions apply:
       ``(1) Applicant.--The term `applicant' means an entity, 
     organization, or individual that submits a proposal for an 
     award or a cooperative agreement under this section.
       ``(2) Business advice and counseling.--The term `business 
     advice and counseling' means providing advice and assistance 
     on matters described in section 35(c)(2)(B) to small business 
     concerns to guide them through the SBIR and STTR program 
     process, from application to award and successful completion 
     of each phase of the program.
       ``(3) FAST program.--The term `FAST program' means the 
     Federal and State Technology Partnership Program established 
     under this section.
       ``(4) Mentor.--The term `mentor' means an individual 
     described in section 35(c)(2).
       ``(5) Mentoring network.--The term `Mentoring Network' 
     means an association, organization, coalition, or other 
     entity (including an individual) that meets the requirements 
     of section 35(c).
       ``(6) Recipient.--The term `recipient' means a person that 
     receives an award or becomes party to a cooperative agreement 
     under this section.
       ``(7) SBIR program.--The term `SBIR program' has the same 
     meaning as in section 9(e)(4).
       ``(8) State.--The term `State' means each of the several 
     States, the District of Columbia, the Commonwealth of Puerto 
     Rico, the Virgin Islands, Guam, and American Samoa.
       ``(9) STTR program.--The term `STTR program' has the same 
     meaning as in section 9(e)(6).
       ``(b) Establishment of Program.--The Administrator shall 
     establish a program to be known as the Federal and State 
     Technology Partnership Program, the purpose of which shall be 
     to strengthen the technological competitiveness of small 
     business concerns in the States.
       ``(c) Grants and Cooperative Agreements.--
       ``(1) Joint review.--In carrying out the FAST program under 
     this section, the Administrator and the SBIR program managers 
     at the National Science Foundation and the Department of 
     Defense shall jointly review proposals submitted by 
     applicants and may make awards or enter into cooperative 
     agreements under this section based on the factors for 
     consideration set forth in paragraph (2), in order to enhance 
     or develop in a State--
       ``(A) technology research and development by small business 
     concerns;
       ``(B) technology transfer from university research to 
     technology-based small business concerns;
       ``(C) technology deployment and diffusion benefiting small 
     business concerns;
       ``(D) the technological capabilities of small business 
     concerns through the establishment or operation of consortia 
     comprised of entities, organizations, or individuals, 
     including--
       ``(i) State and local development agencies and entities;
       ``(ii) representatives of technology-based small business 
     concerns;
       ``(iii) industries and emerging companies;
       ``(iv) universities; and
       ``(v) small business development centers; and
       ``(E) outreach, financial support, and technical assistance 
     to technology-based small business concerns participating in 
     or interested in participating in an SBIR program, including 
     initiatives--
       ``(i) to make grants or loans to companies to pay a portion 
     or all of the cost of developing SBIR proposals;
       ``(ii) to establish or operate a Mentoring Network within 
     the FAST program to provide business advice and counseling 
     that will assist small business concerns that have been 
     identified by FAST program participants, program managers of 
     participating SBIR agencies, the Administration, or other 
     entities that are knowledgeable about the SBIR and STTR 
     programs as good candidates for the SBIR and STTR programs, 
     and that would benefit from mentoring, in accordance with 
     section 35;
       ``(iii) to create or participate in a training program for 
     individuals providing SBIR outreach and assistance at the 
     State and local levels; and
       ``(iv) to encourage the commercialization of technology 
     developed through SBIR program funding.
       ``(2) Selection considerations.--In making awards or 
     entering into cooperative agreements under this section, the 
     Administrator and the SBIR program managers referred to in 
     paragraph (1)--
       ``(A) may only consider proposals by applicants that intend 
     to use a portion of the Federal assistance provided under 
     this section to provide outreach, financial support, or 
     technical assistance to technology-based small business 
     concerns participating in or interested in participating 
     in the SBIR program; and
       ``(B) shall consider, at a minimum--
       ``(i) whether the applicant has demonstrated that the 
     assistance to be provided would address unmet needs of small 
     business concerns in the community, and whether it is 
     important to use Federal funding for the proposed activities;
       ``(ii) whether the applicant has demonstrated that a need 
     exists to increase the number or success of small high-
     technology businesses in the State, as measured by the number 
     of first phase and second phase SBIR awards that have 
     historically been received by small business concerns in the 
     State;
       ``(iii) whether the projected costs of the proposed 
     activities are reasonable;
       ``(iv) whether the proposal integrates and coordinates the 
     proposed activities with other State and local programs 
     assisting small high-technology firms in the State; and
       ``(v) the manner in which the applicant will measure the 
     results of the activities to be conducted.
       ``(3) Proposal limit.--Not more than 1 proposal may be 
     submitted for inclusion in the FAST program under this 
     section to provide services in any one State in any 1 fiscal 
     year.
       ``(4) Process.--Proposals and applications for assistance 
     under this section shall be in such form and subject to such 
     procedures as the Administrator shall establish.
       ``(d) Cooperation and Coordination.--In carrying out the 
     FAST program under this section, the Administrator shall 
     cooperate and coordinate with--
       ``(1) Federal agencies required by section 9 to have an 
     SBIR program; and
       ``(2) entities, organizations, and individuals actively 
     engaged in enhancing or developing the technological 
     capabilities of small business concerns, including--
       ``(A) State and local development agencies and entities;
       ``(B) State committees established under the Experimental 
     Program to Stimulate Competitive Research of the National 
     Science Foundation (as established under section 113 of the 
     National Science Foundation Authorization Act of 1988 (42 
     U.S.C. 1862g));
       ``(C) State science and technology councils; and
       ``(D) representatives of technology-based small business 
     concerns.
       ``(e) Administrative Requirements.--
       ``(1) Competitive basis.--Awards and cooperative agreements 
     under this section shall be made or entered into, as 
     applicable, on a competitive basis.
       ``(2) Matching requirements.--
       ``(A) In general.--The non-Federal share of the cost of an 
     activity (other than a planning activity) carried out using 
     an award or under a cooperative agreement under this section 
     shall be--
       ``(i) 50 cents for each Federal dollar, in the case of a 
     recipient that will serve small business concerns located in 
     one of the 18 States receiving the fewest SBIR first phase 
     awards (as described in section 9(e)(4)(A));

[[Page H11067]]

       ``(ii) except as provided in subparagraph (B), 1 dollar for 
     each Federal dollar, in the case of a recipient that will 
     serve small business concerns located in one of the 16 States 
     receiving the greatest number of such SBIR first phase 
     awards; and
       ``(iii) except as provided in subparagraph (B), 75 cents 
     for each Federal dollar, in the case of a recipient that will 
     serve small business concerns located in a State that is not 
     described in clause (i) or (ii) that is receiving such SBIR 
     first phase awards.
       ``(B) Low-income areas.--The non-Federal share of the cost 
     of the activity carried out using an award or under a 
     cooperative agreement under this section shall be 50 cents 
     for each Federal dollar that will be directly allocated by a 
     recipient described in subparagraph (A) to serve small 
     business concerns located in a qualified census tract, as 
     that term is defined in section 42(d)(5)(C)(ii) of the 
     Internal Revenue Code of 1986. Federal dollars not so 
     allocated by that recipient shall be subject to the matching 
     requirements of subparagraph (A).
       ``(C) Types of funding.--The non-Federal share of the cost 
     of an activity carried out by a recipient shall be comprised 
     of not less than 50 percent cash and not more than 50 percent 
     of indirect costs and in-kind contributions, except that no 
     such costs or contributions may be derived from funds from 
     any other Federal program.
       ``(D) Rankings.--For purposes of subparagraph (A), the 
     Administrator shall reevaluate the ranking of a State once 
     every 2 fiscal years, beginning with fiscal year 2001, based 
     on the most recent statistics compiled by the Administrator.
       ``(3) Duration.--Awards may be made or cooperative 
     agreements entered into under this section for multiple 
     years, not to exceed 5 years in total.
       ``(f) Reports.--
       ``(1) Initial report.--Not later than 120 days after the 
     date of enactment of the Small Business Innovation Research 
     Program Reauthorization Act of 2000, the Administrator shall 
     prepare and submit to the Committee on Small Business of the 
     Senate and the Committee on Science and the Committee on 
     Small Business of the House of Representatives a report, 
     which shall include, with respect to the FAST program, 
     including Mentoring Networks--
       ``(A) a description of the structure and procedures of the 
     program;
       ``(B) a management plan for the program; and
       ``(C) a description of the merit-based review process to be 
     used in the program.
       ``(2) Annual reports.--The Administrator shall submit an 
     annual report to the Committee on Small Business of the 
     Senate and the Committee on Science and the Committee on 
     Small Business of the House of Representatives regarding--
       ``(A) the number and amount of awards provided and 
     cooperative agreements entered into under the FAST program 
     during the preceding year;
       ``(B) a list of recipients under this section, including 
     their location and the activities being performed with the 
     awards made or under the cooperative agreements entered into; 
     and
       ``(C) the Mentoring Networks and the mentoring database, as 
     provided for under section 35, including--
       ``(i) the status of the inclusion of mentoring information 
     in the database required by section 9(k); and
       ``(ii) the status of the implementation and description of 
     the usage of the Mentoring Networks.
       ``(g) Reviews by Inspector General.--
       ``(1) In general.--The Inspector General of the 
     Administration shall conduct a review of--
       ``(A) the extent to which recipients under the FAST program 
     are measuring the performance of the activities being 
     conducted and the results of such measurements; and
       ``(B) the overall management and effectiveness of the FAST 
     program.
       ``(2) Report.--During the first quarter of fiscal year 
     2004, the Inspector General of the Administration shall 
     submit a report to the Committee on Small Business of the 
     Senate and the Committee on Science and the Committee on 
     Small Business of the House of Representatives on the review 
     conducted under paragraph (1).
       ``(h) Program Levels.--
       ``(1) In general.--There is authorized to be appropriated 
     to carry out the FAST program, including Mentoring Networks, 
     under this section and section 35, $10,000,000 for each of 
     fiscal years 2001 through 2005.
       ``(2) Mentoring database.--Of the total amount made 
     available under paragraph (1) for fiscal years 2001 through 
     2005, a reasonable amount, not to exceed a total of $500,000, 
     may be used by the Administration to carry out section 35(d).
       ``(i) Termination.--The authority to carry out the FAST 
     program under this section shall terminate on September 30, 
     2005.''.
       (c) Coordination of Technology Development Programs.--
     Section 9 of the Small Business Act (15 U.S.C. 638) is 
     amended by adding at the end the following:
       ``(u) Coordination of Technology Development Programs.--
       ``(1) Definition of technology development program.--In 
     this subsection, the term `technology development program' 
     means--
       ``(A) the Experimental Program to Stimulate Competitive 
     Research of the National Science Foundation, as established 
     under section 113 of the National Science Foundation 
     Authorization Act of 1988 (42 U.S.C. 1862g);
       ``(B) the Defense Experimental Program to Stimulate 
     Competitive Research of the Department of Defense;
       ``(C) the Experimental Program to Stimulate Competitive 
     Research of the Department of Energy;
       ``(D) the Experimental Program to Stimulate Competitive 
     Research of the Environmental Protection Agency;
       ``(E) the Experimental Program to Stimulate Competitive 
     Research of the National Aeronautics and Space 
     Administration;
       ``(F) the Institutional Development Award Program of the 
     National Institutes of Health; and
       ``(G) the National Research Initiative Competitive Grants 
     Program of the Department of Agriculture.
       ``(2) Coordination requirements.--Each Federal agency that 
     is subject to subsection (f) and that has established a 
     technology development program may, in each fiscal year, 
     review for funding under that technology development 
     program--
       ``(A) any proposal to provide outreach and assistance to 1 
     or more small business concerns interested in participating 
     in the SBIR program, including any proposal to make a grant 
     or loan to a company to pay a portion or all of the cost of 
     developing an SBIR proposal, from an entity, organization, or 
     individual located in--
       ``(i) a State that is eligible to participate in that 
     program; or
       ``(ii) a State described in paragraph (3); or
       ``(B) any proposal for the first phase of the SBIR program, 
     if the proposal, though meritorious, is not funded through 
     the SBIR program for that fiscal year due to funding 
     restraints, from a small business concern located in--
       ``(i) a State that is eligible to participate in a 
     technology development program; or
       ``(ii) a State described in paragraph (3).
       ``(3) Additionally eligible state.--A State referred to in 
     subparagraph (A)(ii) or (B)(ii) of paragraph (2) is a State 
     in which the total value of contracts awarded to small 
     business concerns under all SBIR programs is less than the 
     total value of contracts awarded to small business concerns 
     in a majority of other States, as determined by the 
     Administrator in biennial fiscal years, beginning with fiscal 
     year 2000, based on the most recent statistics compiled by 
     the Administrator.''.

     SEC. 112. MENTORING NETWORKS.

       The Small Business Act (15 U.S.C. 631 et seq.) is amended 
     by inserting after section 34, as added by section 111(b)(2) 
     of this Act, the following:

     ``SEC. 35. MENTORING NETWORKS.

       ``(a) Findings.--Congress finds that--
       ``(1) the SBIR and STTR programs create jobs, increase 
     capacity for technological innovation, and boost 
     international competitiveness;
       ``(2) increasing the quantity of applications from all 
     States to the SBIR and STTR programs would enhance 
     competition for such awards and the quality of the completed 
     projects; and
       ``(3) mentoring is a natural complement to the FAST program 
     of reaching out to new companies regarding the SBIR and STTR 
     programs as an effective and low-cost way to improve the 
     likelihood that such companies will succeed in such programs 
     in developing and commercializing their research.
       ``(b) Authorization for Mentoring Networks.--The recipient 
     of an award or participant in a cooperative agreement under 
     section 34 may use a reasonable amount of such assistance for 
     the establishment of a Mentoring Network under this section.
       ``(c) Criteria for Mentoring Networks.--A Mentoring Network 
     established using assistance under section 34 shall--
       ``(1) provide business advice and counseling to high 
     technology small business concerns located in the State or 
     region served by the Mentoring Network and identified under 
     section 34(c)(1)(E)(ii) as potential candidates for the SBIR 
     or STTR programs;
       ``(2) identify volunteer mentors who--
       ``(A) are persons associated with a small business concern 
     that has successfully completed one or more SBIR or STTR 
     funding agreements; and
       ``(B) have agreed to guide small business concerns through 
     all stages of the SBIR or STTR program process, including 
     providing assistance relating to--
       ``(i) proposal writing;
       ``(ii) marketing;
       ``(iii) Government accounting;
       ``(iv) Government audits;
       ``(v) project facilities and equipment;
       ``(vi) human resources;
       ``(vii) third phase partners;
       ``(viii) commercialization;
       ``(ix) venture capital networking; and
       ``(x) other matters relevant to the SBIR and STTR programs;
       ``(3) have experience working with small business concerns 
     participating in the SBIR and STTR programs;
       ``(4) contribute information to the national database 
     referred to in subsection (d); and
       ``(5) agree to reimburse volunteer mentors for out-of-
     pocket expenses related to service as a mentor under this 
     section.
       ``(d) Mentoring Database.--The Administrator shall--
       ``(1) include in the database required by section 9(k)(1), 
     in cooperation with the SBIR, STTR, and FAST programs, 
     information on Mentoring Networks and mentors participating 
     under this section, including a description of their areas of 
     expertise;
       ``(2) work cooperatively with Mentoring Networks to 
     maintain and update the database;
       ``(3) take such action as may be necessary to aggressively 
     promote Mentoring Networks under this section; and
       ``(4) fulfill the requirements of this subsection either 
     directly or by contract.''.

     SEC. 113. SIMPLIFIED REPORTING REQUIREMENTS.

       Section 9 of the Small Business Act (15 U.S.C. 638), as 
     amended by this Act, is further amended by adding at the end 
     the following:

[[Page H11068]]

       ``(v) Simplified Reporting Requirements.--The Administrator 
     shall work with the Federal agencies required by this section 
     to have an SBIR program to standardize reporting requirements 
     for the collection of data from SBIR applicants and awardees, 
     including data for inclusion in the database under subsection 
     (k), taking into consideration the unique needs of each 
     agency, and to the extent possible, permitting the updating 
     of previously reported information by electronic means. Such 
     requirements shall be designed to minimize the burden on 
     small businesses.''.

     SEC. 114. RURAL OUTREACH PROGRAM EXTENSION.

       (a) Extension of Termination Date.--Section 501(b)(2) of 
     the Small Business Reauthorization Act of 1997 (15 U.S.C. 638 
     note; 111 Stat. 2622) is amended by striking ``2001'' and 
     inserting ``2005''.
       (b) Extension of Authorization of Appropriations.--Section 
     9(s)(2) of the Small Business Act (15 U.S.C. 638(s)(2)) is 
     amended by striking ``for fiscal year 1998, 1999, 2000, or 
     2001'' and inserting ``for each of the fiscal years 2000 
     through 2005,''.
                    TITLE II--BUSINESS LOAN PROGRAMS

     SEC. 201. SHORT TITLE.

       This title may be cited as the ``Small Business Loan 
     Improvement Act of 2000''.

     SEC. 202. LEVELS OF PARTICIPATION.

       Section 7(a)(2)(A) of the Small Business Act (15 U.S.C. 
     636(a)(2)(A)) is amended--
       (1) in paragraph (i) by striking ``$100,000'' and inserting 
     ``$150,000''; and
       (2) in paragraph (ii)--
       (A) by striking ``80 percent'' and inserting ``85 
     percent''; and
       (B) by striking ``$100,000'' and inserting ``$150,000''.

     SEC. 203. LOAN AMOUNTS.

       Section 7(a)(3)(A) of the Small Business Act (15 U.S.C. 
     636(a)(3)(A)) is amended by striking ``$750,000,'' and 
     inserting, ``$1,000,000 (or if the gross loan amount would 
     exceed $2,000,000),''.

     SEC. 204. INTEREST ON DEFAULTED LOANS.

       Section 7(a)(4)(B) of the Small Business Act (15 U.S.C. 
     636(a)(4)(B)) is amended by adding at the end the following:
       ``(iii) Applicability.--Clauses (i) and (ii) shall not 
     apply to loans made on or after October 1, 2000.''.

     SEC. 205. PREPAYMENT OF LOANS.

       Section 7(a)(4) of the Small Business Act (15 U.S.C. 
     636(a)(4)) is further amended--
       (1) by striking ``(4) Interest rates and fees.--'' and 
     inserting ``(4) Interest rates and prepayment charges.--''; 
     and
       (2) by adding at the end the following:
       ``(C) Prepayment charges.--
       ``(i) In general.--A borrower who prepays any loan 
     guaranteed under this subsection shall remit to the 
     Administration a subsidy recoupment fee calculated in 
     accordance with clause (ii) if--

       ``(I) the loan is for a term of not less than 15 years;
       ``(II) the prepayment is voluntary;
       ``(III) the amount of prepayment in any calendar year is 
     more than 25 percent of the outstanding balance of the loan; 
     and
       ``(IV) the prepayment is made within the first 3 years 
     after disbursement of the loan proceeds.

       ``(ii) Subsidy recoupment fee.--The subsidy recoupment fee 
     charged under clause (i) shall be--

       ``(I) 5 percent of the amount of prepayment, if the 
     borrower prepays during the first year after disbursement;
       ``(II) 3 percent of the amount of prepayment, if the 
     borrower prepays during the second year after disbursement; 
     and
       ``(III) 1 percent of the amount of prepayment, if the 
     borrower prepays during the third year after disbursement.''.

     SEC. 206. GUARANTEE FEES.

       Section 7(a)(18) of the Small Business Act (15 U.S.C. 
     636(a)(18)) is amended to read as follows:
       ``(18) Guarantee fees.--
       ``(A) In general.--With respect to each loan guaranteed 
     under this subsection (other than a loan that is repayable in 
     1 year or less), the Administration shall collect a guarantee 
     fee, which shall be payable by the participating lender, and 
     may be charged to the borrower, as follows:
       ``(i) A guarantee fee equal to 2 percent of the deferred 
     participation share of a total loan amount that is not more 
     than $150,000.
       ``(ii) A guarantee fee equal to 3 percent of the deferred 
     participation share of a total loan amount that is more than 
     $150,000, but not more than $700,000.
       ``(iii) A guarantee fee equal to 3.5 percent of the 
     deferred participation share of a total loan amount that is 
     more than $700,000.
       ``(B) Retention of certain fees.--Lenders participating in 
     the programs established under this subsection may retain not 
     more than 25 percent of a fee collected under subparagraph 
     (A)(i).''.

     SEC. 207. LEASE TERMS.

       Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) 
     is further amended by adding at the end the following:
       ``(28) Leasing.--In addition to such other lease 
     arrangements as may be authorized by the Administration, a 
     borrower may permanently lease to one or more tenants not 
     more than 20 percent of any property constructed with the 
     proceeds of a loan guaranteed under this subsection, if the 
     borrower permanently occupies and uses not less than 60 
     percent of the total business space in the property.''.

     SEC. 208. APPRAISALS FOR LOANS SECURED BY REAL PROPERTY.

       (a) Small Business Act.--Section 7(a) of the Small Business 
     Act (15 U.S.C. 636(a)) is amended by adding at the end the 
     following:
       ``(29) Real estate appraisals.--With respect to a loan 
     under this subsection that is secured by commercial real 
     property, an appraisal of such property by a State licensed 
     or certified appraiser--
       ``(A) shall be required by the Administration in connection 
     with any such loan for more than $250,000; or
       ``(B) may be required by the Administration or the lender 
     in connection with any such loan for $250,000 or less, if 
     such appraisal is necessary for appropriate evaluation of 
     creditworthiness.''.
       (b) Small Business Investment Act of 1958.--Section 
     502(3)(E) of the Small Business Investment Act of 1958 (15 
     U.S.C. 696(3)(E)) is amended--
       (1) by striking ``The collateral'' and inserting the 
     following:
       ``(i) In general.--The collateral''; and
       (2) by adding at the end the following:
       ``(ii) Appraisals.--With respect to commercial real 
     property provided by the small business concern as 
     collateral, an appraisal of the property by a State licensed 
     or certified appraiser--

       ``(I) shall be required by the Administration before 
     disbursement of the loan if the estimated value of that 
     property is more than $250,000; or
       ``(II) may be required by the Administration or the lender 
     before disbursement of the loan if the estimated value of 
     that property is $250,000 or less, and such appraisal is 
     necessary for appropriate evaluation of creditworthiness.''.

     SEC. 209. SALE OF GUARANTEED LOANS MADE FOR EXPORT PURPOSES.

       Section 5(f)(1)(C) of the Small Business Act (15 U.S.C. 
     634(f)(1)(C)) is amended to read as follows:
       ``(C) each loan, except each loan made under section 
     7(a)(14), shall have been fully disbursed to the borrower 
     prior to any sale.''.

     SEC. 210. MICROLOAN PROGRAM.

       (a) In General.--Section 7(m) of the Small Business Act (15 
     U.S.C. 636(m)) is amended--
       (1) in paragraphs (1)(B)(iii) and (3)(E), by striking 
     ``$25,000'' each place it appears and inserting ``$35,000'';
       (2) in paragraphs (1)(A)(iii)(I), (3)(A)(ii), and 
     (4)(C)(i)(II), by striking ``$7,500'' each place it appears 
     and inserting ``$10,000'';
       (3) in paragraph (3)(E), by striking ``$15,000'' and 
     inserting ``$20,000'';
       (4) in paragraph (5)(A)--
       (A) by striking ``25 grants'' and inserting ``55 grants''; 
     and
       (B) by striking ``$125,000'' and inserting ``$200,000'';
       (5) in paragraph (6)(B), by striking ``$10,000'' and 
     inserting ``$15,000''; and
       (6) in paragraph (7), by striking subparagraph (A) and 
     inserting the following:
       ``(A) Number of participants.--Under the program authorized 
     by this subsection, the Administration may fund, on a 
     competitive basis, not more than 300 intermediaries.''.
       (b) Conforming Amendments.--Section 7(m)(11)(B) of the 
     Small Business Act (15 U.S.C. 636(m)(11)(B)) is amended by 
     striking ``$25,000'' and inserting ``$35,000''.
            TITLE III--CERTIFIED DEVELOPMENT COMPANY PROGRAM

     SEC. 301. SHORT TITLE.

       This title may be cited as the ``Certified Development 
     Company Program Improvements Act of 2000''.

     SEC. 302. WOMEN-OWNED BUSINESSES.

       Section 501(d)(3)(C) of the Small Business Investment Act 
     of 1958 (15 U.S.C. 695(d)(3)(C)) is amended by inserting 
     before the comma ``or women-owned business development''.

     SEC. 303. MAXIMUM DEBENTURE SIZE.

       Section 502(2) of the Small Business Investment Act of 1958 
     (15 U.S.C. 696(2)) is amended to read as follows:
       ``(2) Loans made by the Administration under this section 
     shall be limited to $1,000,000 for each such identifiable 
     small business concern, except loans meeting the criteria 
     specified in section 501(d)(3), which shall be limited to 
     $1,300,000 for each such identifiable small business 
     concern.''.

     SEC. 304. FEES.

       Section 503(f) of the Small Business Investment Act of 1958 
     (15 U.S.C. 697(f)) is amended to read as follows:
       ``(f) Effective Date.--The fees authorized by subsections 
     (b) and (d) shall apply to financings approved by the 
     Administration on or after October 1, 1996, but shall not 
     apply to financings approved by the Administration on or 
     after October 1, 2003.''.

     SEC. 305. PREMIER CERTIFIED LENDERS PROGRAM.

       Section 217(b) of the Small Business Administration 
     Reauthorization and Amendments Act of 1994 (Public Law 103-
     403, 15 U.S.C. 697 note) (relating to section 508 of the 
     Small Business Investment Act of 1958) is repealed.

     SEC. 306. SALE OF CERTAIN DEFAULTED LOANS.

       Section 508 of the Small Business Investment Act of 1958 
     (15 U.S.C. 697e) is amended--
       (1) in subsection (a), by striking ``On a pilot program 
     basis, the'' and inserting ``The'';
       (2) by redesignating subsections (d) through (i) as 
     subsections (e) through (j), respectively;
       (3) in subsection (f) (as redesignated by paragraph (2)), 
     by striking ``subsection (f)'' and inserting ``subsection 
     (g)'';
       (4) in subsection (h) (as redesignated by paragraph (2)), 
     by striking ``subsection (f)'' and inserting ``subsection 
     (g)''; and
       (5) by inserting after subsection (c) the following:
       ``(d) Sale of Certain Defaulted Loans.--
       ``(1) Notice.--If, upon default in repayment, the 
     Administration acquires a loan guaranteed under this section 
     and identifies such loan for inclusion in a bulk asset sale 
     of defaulted or repurchased loans or other financings, it 
     shall give prior notice thereof to any certified development 
     company which has a contingent liability under this section. 
     The notice shall be given to the company as soon as possible 
     after the financing is identified, but not less than 90 days

[[Page H11069]]

     before the date the Administration first makes any records on 
     such financing available for examination by prospective 
     purchasers prior to its offering in a package of loans for 
     bulk sale.
       ``(2) Limitations.--The Administration shall not offer any 
     loan described in paragraph (1) as part of a bulk sale unless 
     it--
       ``(A) provides prospective purchasers with the opportunity 
     to examine the Administration's records with respect to such 
     loan; and
       ``(B) provides the notice required by paragraph (1).''.

     SEC. 307. LOAN LIQUIDATION.

       (a) Liquidation and Foreclosure.--Title V of the Small 
     Business Investment Act of 1958 (15 U.S.C. 695 et seq.) is 
     amended by adding at the end the following:

     ``SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS.

       ``(a) Delegation of Authority.--In accordance with this 
     section, the Administration shall delegate to any qualified 
     State or local development company (as defined in section 
     503(e)) that meets the eligibility requirements of subsection 
     (b)(1) the authority to foreclose and liquidate, or to 
     otherwise treat in accordance with this section, defaulted 
     loans in its portfolio that are funded with the proceeds of 
     debentures guaranteed by the Administration under section 
     503.
       ``(b) Eligibility for Delegation.--
       ``(1) Requirements.--A qualified State or local development 
     company shall be eligible for a delegation of authority under 
     subsection (a) if--
       ``(A) the company--
       ``(i) has participated in the loan liquidation pilot 
     program established by the Small Business Programs 
     Improvement Act of 1996 (15 U.S.C. 695 note), as in effect on 
     the day before promulgation of final regulations by the 
     Administration implementing this section;
       ``(ii) is participating in the Premier Certified Lenders 
     Program under section 508; or
       ``(iii) during the 3 fiscal years immediately prior to 
     seeking such a delegation, has made an average of not less 
     than 10 loans per year that are funded with the proceeds of 
     debentures guaranteed under section 503; and
       ``(B) the company--
       ``(i) has one or more employees--

       ``(I) with not less than 2 years of substantive, decision-
     making experience in administering the liquidation and 
     workout of problem loans secured in a manner substantially 
     similar to loans funded with the proceeds of debentures 
     guaranteed under section 503; and
       ``(II) who have completed a training program on loan 
     liquidation developed by the Administration in conjunction 
     with qualified State and local development companies that 
     meet the requirements of this paragraph; or

       ``(ii) submits to the Administration documentation 
     demonstrating that the company has contracted with a 
     qualified third-party to perform any liquidation activities 
     and secures the approval of the contract by the 
     Administration with respect to the qualifications of the 
     contractor and the terms and conditions of liquidation 
     activities.
       ``(2) Confirmation.--On request the Administration shall 
     examine the qualifications of any company described in 
     subsection (a) to determine if such company is eligible for 
     the delegation of authority under this section. If the 
     Administration determines that a company is not eligible, the 
     Administration shall provide the company with the reasons for 
     such ineligibility.
       ``(c) Scope of Delegated Authority.--
       ``(1) In general.--Each qualified State or local 
     development company to which the Administration delegates 
     authority under section (a) may with respect to any loan 
     described in subsection (a)--
       ``(A) perform all liquidation and foreclosure functions, 
     including the purchase in accordance with this subsection of 
     any other indebtedness secured by the property securing the 
     loan, in a reasonable and sound manner according to 
     commercially accepted practices, pursuant to a liquidation 
     plan approved in advance by the Administration under 
     paragraph (2)(A);
       ``(B) litigate any matter relating to the performance of 
     the functions described in subparagraph (A), except that the 
     Administration may--
       ``(i) defend or bring any claim if--

       ``(I) the outcome of the litigation may adversely affect 
     the Administration's management of the loan program 
     established under section 502; or
       ``(II) the Administration is entitled to legal remedies not 
     available to a qualified State or local development company 
     and such remedies will benefit either the Administration or 
     the qualified State or local development company; or

       ``(ii) oversee the conduct of any such litigation; and
       ``(C) take other appropriate actions to mitigate loan 
     losses in lieu of total liquidation or foreclosures, 
     including the restructuring of a loan in accordance with 
     prudent loan servicing practices and pursuant to a workout 
     plan approved in advance by the Administration under 
     paragraph (2)(C).
       ``(2) Administration approval.--
       ``(A) Liquidation plan.--
       ``(i) In general.--Before carrying out functions described 
     in paragraph (1)(A), a qualified State or local development 
     company shall submit to the Administration a proposed 
     liquidation plan.
       ``(ii) Administration action on plan.--

       ``(I) Timing.--Not later than 15 business days after a 
     liquidation plan is received by the Administration under 
     clause (i), the Administration shall approve or reject the 
     plan.
       ``(II) Notice of no decision.--With respect to any plan 
     that cannot be approved or denied within the 15-day period 
     required by subclause (I), the Administration shall within 
     such period provide in accordance with subparagraph (E) 
     notice to the company that submitted the plan.

       ``(iii) Routine actions.--In carrying out functions 
     described in paragraph (1)(A), a qualified State or local 
     development company may undertake routine actions not 
     addressed in a liquidation plan without obtaining additional 
     approval from the Administration.
       ``(B) Purchase of indebtedness.--
       ``(i) In general.--In carrying out functions described in 
     paragraph (1)(A), a qualified State or local development 
     company shall submit to the Administration a request for 
     written approval before committing the Administration to the 
     purchase of any other indebtedness secured by the property 
     securing a defaulted loan.
       ``(ii) Administration action on request.--

       ``(I) Timing.--Not later than 15 business days after 
     receiving a request under clause (i), the Administration 
     shall approve or deny the request.
       ``(II) Notice of no decision.--With respect to any request 
     that cannot be approved or denied within the 15-day period 
     required by subclause (I), the Administration shall within 
     such period provide in accordance with subparagraph (E) 
     notice to the company that submitted the request.

       ``(C) Workout plan.--
       ``(i) In general.--In carrying out functions described in 
     paragraph (1)(C), a qualified State or local development 
     company shall submit to the Administration a proposed workout 
     plan.
       ``(ii) Administration action on plan.--

       ``(I) Timing.--Not later than 15 business days after a 
     workout plan is received by the Administration under clause 
     (i), the Administration shall approve or reject the plan.
       ``(II) Notice of no decision.--With respect to any workout 
     plan that cannot be approved or denied within the 15-day 
     period required by subclause (I), the Administration shall 
     within such period provide in accordance with subparagraph 
     (E) notice to the company that submitted the plan.

       ``(D) Compromise of indebtedness.--In carrying out 
     functions described in paragraph (1)(A), a qualified State or 
     local development company may--
       ``(i) consider an offer made by an obligor to compromise 
     the debt for less than the full amount owing; and
       ``(ii) pursuant to such an offer, release any obligor or 
     other party contingently liable, if the company secures the 
     written approval of the Administration.
       ``(E) Contents of notice of no decision.--Any notice 
     provided by the Administration under subparagraph 
     (A)(ii)(II), (B)(ii)(II), or (C)(ii)(II)--
       ``(i) shall be in writing;
       ``(ii) shall state the specific reason for the 
     Administration's inability to act on a plan or request;
       ``(iii) shall include an estimate of the additional time 
     required by the Administration to act on the plan or request; 
     and
       ``(iv) if the Administration cannot act because 
     insufficient information or documentation was provided by the 
     company submitting the plan or request, shall specify the 
     nature of such additional information or documentation.
       ``(3) Conflict of interest.--In carrying out functions 
     described in paragraph (1), a qualified State or local 
     development company shall take no action that would result in 
     an actual or apparent conflict of interest between the 
     company (or any employee of the company) and any third party 
     lender, associate of a third party lender, or any other 
     person participating in a liquidation, foreclosure, or loss 
     mitigation action.
       ``(d) Suspension or Revocation of Authority.--The 
     Administration may revoke or suspend a delegation of 
     authority under this section to any qualified State or local 
     development company, if the Administration determines that 
     the company--
       ``(1) does not meet the requirements of subsection (b)(1);
       ``(2) has violated any applicable rule or regulation of the 
     Administration or any other applicable law; or
       ``(3) fails to comply with any reporting requirement that 
     may be established by the Administration relating to carrying 
     out of functions described in paragraph (1).
       ``(e) Report.--
       ``(1) In general.--Based on information provided by 
     qualified State and local development companies and the 
     Administration, the Administration shall annually submit to 
     the Committees on Small Business of the House of 
     Representatives and of the Senate a report on the results of 
     delegation of authority under this section.
       ``(2) Contents.--Each report submitted under paragraph (1) 
     shall include the following information:
       ``(A) With respect to each loan foreclosed or liquidated by 
     a qualified State or local development company under this 
     section, or for which losses were otherwise mitigated by the 
     company pursuant to a workout plan under this section--
       ``(i) the total cost of the project financed with the loan;
       ``(ii) the total original dollar amount guaranteed by the 
     Administration;
       ``(iii) the total dollar amount of the loan at the time of 
     liquidation, foreclosure, or mitigation of loss;
       ``(iv) the total dollar losses resulting from the 
     liquidation, foreclosure, or mitigation of loss; and
       ``(v) the total recoveries resulting from the liquidation, 
     foreclosure, or mitigation of loss, both as a percentage of 
     the amount guaranteed and the total cost of the project 
     financed.
       ``(B) With respect to each qualified State or local 
     development company to which authority is delegated under 
     this section, the totals of each of the amounts described in 
     clauses (i) through (v) of subparagraph (A).
       ``(C) With respect to all loans subject to foreclosure, 
     liquidation, or mitigation under this

[[Page H11070]]

     section, the totals of each of the amounts described in 
     clauses (i) through (v) of subparagraph (A).
       ``(D) A comparison between--
       ``(i) the information provided under subparagraph (C) with 
     respect to the 12-month period preceding the date on which 
     the report is submitted; and
       ``(ii) the same information with respect to loans 
     foreclosed and liquidated, or otherwise treated, by the 
     Administration during the same period.
       ``(E) The number of times that the Administration has 
     failed to approve or reject a liquidation plan in accordance 
     with subparagraph (A)(i), a workout plan in accordance with 
     subparagraph (C)(i), or to approve or deny a request for 
     purchase of indebtedness under subparagraph (B)(i), including 
     specific information regarding the reasons for the 
     Administration's failure and any delays that resulted.''.
       (b) Regulations.--
       (1) In general.--Not later than 150 days after the date of 
     enactment of this Act, the Administrator shall issue such 
     regulations as may be necessary to carry out section 510 of 
     the Small Business Investment Act of 1958, as added by 
     subsection (a) of this section.
       (2) Termination of pilot program.--Beginning on the date on 
     which final regulations are issued under paragraph (1), 
     section 204 of the Small Business Programs Improvement Act of 
     1996 (15 U.S.C. 695 note) shall cease to have effect.
   TITLE IV--CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT OF 1958

     SEC. 401. SHORT TITLE.

       This title may be cited as the ``Small Business Investment 
     Corrections Act of 2000''.

     SEC. 402. DEFINITIONS.

       (a) Small Business Concern.--Section 103(5)(A)(i) of the 
     Small Business Investment Act of 1958 (15 U.S.C. 
     662(5)(A)(i)) is amended by inserting before the semicolon at 
     the end the following: ``regardless of the allocation of 
     control during the investment period under any investment 
     agreement between the business concern and the entity making 
     the investment''.
       (b) Long Term.--Section 103 of the Small Business 
     Investment Act of 1958 (15 U.S.C. 662) is amended--
       (1) in paragraph (15), by striking ``and'' at the end;
       (2) in paragraph (16), by striking the period at the end 
     and inserting ``; and''; and
       (3) by adding at the end the following:
       ``(17) the term `long term', when used in connection with 
     equity capital or loan funds invested in any small business 
     concern or smaller enterprise, means any period of time not 
     less than 1 year.''.

     SEC. 403. INVESTMENT IN SMALL BUSINESS INVESTMENT COMPANIES.

       Section 302(b) of the Small Business Investment Act of 1958 
     (15 U.S.C. 682(b)) is amended--
       (1) by striking ``(b) Notwithstanding'' and inserting the 
     following:
       ``(b) Financial Institution Investments.--
       ``(1) Certain banks.--Notwithstanding''; and
       (2) by adding at the end the following:
       ``(2) Certain savings associations.--Notwithstanding any 
     other provision of law, any Federal savings association may 
     invest in any 1 or more small business investment companies, 
     or in any entity established to invest solely in small 
     business investment companies, except that in no event may 
     the total amount of such investments by any such Federal 
     savings association exceed 5 percent of the capital and 
     surplus of the Federal savings association.''.

     SEC. 404. SUBSIDY FEES.

       (a) Debentures.--Section 303(b) of the Small Business 
     Investment Act of 1958 (15 U.S.C. 683(b)) is amended by 
     striking ``plus an additional charge of 1 percent per annum 
     which shall be paid to and retained by the Administration'' 
     and inserting ``plus, for debentures obligated after 
     September 30, 2000, an additional charge, in an amount 
     established annually by the Administration, of not more than 
     1 percent per year as necessary to reduce to zero the cost 
     (as defined in section 502 of the Federal Credit Reform Act 
     of 1990 (2 U.S.C. 661a)) to the Administration of purchasing 
     and guaranteeing debentures under this Act, which shall be 
     paid to and retained by the Administration''.
       (b) Participating Securities.--Section 303(g)(2) of the 
     Small Business Investment Act of 1958 (15 U.S.C. 683(g)(2)) 
     is amended by striking ``plus an additional charge of 1 
     percent per annum which shall be paid to and retained by the 
     Administration'' and inserting ``plus, for participating 
     securities obligated after September 30, 2000, an additional 
     charge, in an amount established annually by the 
     Administration, of not more than 1 percent per year as 
     necessary to reduce to zero the cost (as defined in section 
     502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) 
     to the Administration of purchasing and guaranteeing 
     participating securities under this Act, which shall be paid 
     to and retained by the Administration''.

     SEC. 405. DISTRIBUTIONS.

       Section 303(g)(8) of the Small Business Investment Act of 
     1958 (15 U.S.C. 683(g)(8)) is amended--
       (1) by striking ``subchapter s corporation'' and inserting 
     ``subchapter S corporation'';
       (2) by striking ``the end of any calendar quarter based on 
     a quarterly'' and inserting ``any time during any calendar 
     quarter based on an''; and
       (3) by striking ``quarterly distributions for a calendar 
     year,'' and inserting ``interim distributions for a calendar 
     year,''.

     SEC. 406. CONFORMING AMENDMENT.

       Section 310(c)(4) of the Small Business Investment Act of 
     1958 (15 U.S.C. 687b(c)(4)) is amended by striking ``five 
     years'' and inserting ``1 year''.
          TITLE V--REAUTHORIZATION OF SMALL BUSINESS PROGRAMS

     SEC. 501. SHORT TITLE.

       This title may be cited as the ``Small Business Programs 
     Reauthorization Act of 2000''.

     SEC. 502. REAUTHORIZATION OF SMALL BUSINESS PROGRAMS.

       Section 20 of the Small Business Act (15 U.S.C. 631 note) 
     is amended by adding at the end the following:
       ``(g) Fiscal Year 2001.--
       ``(1) Program levels.--The following program levels are 
     authorized for fiscal year 2001:
       ``(A) For the programs authorized by this Act, the 
     Administration is authorized to make--
       ``(i) $45,000,000 in technical assistance grants as 
     provided in section 7(m); and
       ``(ii) $60,000,000 in direct loans, as provided in 7(m).
       ``(B) For the programs authorized by this Act, the 
     Administration is authorized to make $19,050,000,000 in 
     deferred participation loans and other financings. Of such 
     sum, the Administration is authorized to make--
       ``(i) $14,500,000,000 in general business loans as provided 
     in section 7(a);
       ``(ii) $4,000,000,000 in financings as provided in section 
     7(a)(13) of this Act and section 504 of the Small Business 
     Investment Act of 1958;
       ``(iii) $500,000,000 in loans as provided in section 
     7(a)(21); and
       ``(iv) $50,000,000 in loans as provided in section 7(m).
       ``(C) For the programs authorized by title III of the Small 
     Business Investment Act of 1958, the Administration is 
     authorized to make--
       ``(i) $2,500,000,000 in purchases of participating 
     securities; and
       ``(ii) $1,500,000,000 in guarantees of debentures.
       ``(D) For the programs authorized by part B of title IV of 
     the Small Business Investment Act of 1958, the Administration 
     is authorized to enter into guarantees not to exceed 
     $4,000,000,000 of which not more than 50 percent may be in 
     bonds approved pursuant to section 411(a)(3) of that Act.
       ``(E) The Administration is authorized to make grants or 
     enter cooperative agreements for a total amount of $5,000,000 
     for the Service Corps of Retired Executives program 
     authorized by section 8(b)(1).
       ``(2) Additional authorizations.--
       ``(A) There are authorized to be appropriated to the 
     Administration for fiscal year 2001 such sums as may be 
     necessary to carry out the provisions of this Act not 
     elsewhere provided for, including administrative expenses and 
     necessary loan capital for disaster loans pursuant to section 
     7(b), and to carry out title IV of the Small Business 
     Investment Act of 1958, including salaries and expenses of 
     the Administration.
       ``(B) Notwithstanding any other provision of this 
     paragraph, for fiscal year 2001--
       ``(i) no funds are authorized to be used as loan capital 
     for the loan program authorized by section 7(a)(21) except by 
     transfer from another Federal department or agency to the 
     Administration, unless the program level authorized for 
     general business loans under paragraph (1)(B)(i) is fully 
     funded; and
       ``(ii) the Administration may not approve loans on its own 
     behalf or on behalf of any other Federal department or 
     agency, by contract or otherwise, under terms and conditions 
     other than those specifically authorized under this Act or 
     the Small Business Investment Act of 1958, except that it may 
     approve loans under section 7(a)(21) of this Act in gross 
     amounts of not more than $1,250,000.
       ``(h) Fiscal Year 2002.--
       ``(1) Program levels.--The following program levels are 
     authorized for fiscal year 2002:
       ``(A) For the programs authorized by this Act, the 
     Administration is authorized to make--
       ``(i) $60,000,000 in technical assistance grants as 
     provided in section 7(m); and
       ``(ii) $80,000,000 in direct loans, as provided in 7(m).
       ``(B) For the programs authorized by this Act, the 
     Administration is authorized to make $20,050,000,000 in 
     deferred participation loans and other financings. Of such 
     sum, the Administration is authorized to make--
       ``(i) $15,000,000,000 in general business loans as provided 
     in section 7(a);
       ``(ii) $4,500,000,000 in financings as provided in section 
     7(a)(13) of this Act and section 504 of the Small Business 
     Investment Act of 1958;
       ``(iii) $500,000,000 in loans as provided in section 
     7(a)(21); and
       ``(iv) $50,000,000 in loans as provided in section 7(m).
       ``(C) For the programs authorized by title III of the Small 
     Business Investment Act of 1958, the Administration is 
     authorized to make--
       ``(i) $3,500,000,000 in purchases of participating 
     securities; and
       ``(ii) $2,500,000,000 in guarantees of debentures.
       ``(D) For the programs authorized by part B of title IV of 
     the Small Business Investment Act of 1958, the Administration 
     is authorized to enter into guarantees not to exceed 
     $5,000,000,000 of which not more than 50 percent may be in 
     bonds approved pursuant to section 411(a)(3) of that Act.
       ``(E) The Administration is authorized to make grants or 
     enter cooperative agreements for a total amount of $6,000,000 
     for the Service Corps of Retired Executives program 
     authorized by section 8(b)(1).
       ``(2) Additional authorizations.--
       ``(A) There are authorized to be appropriated to the 
     Administration for fiscal year 2002 such sums as may be 
     necessary to carry out the provisions of this Act not 
     elsewhere provided for, including administrative expenses and 
     necessary loan capital for disaster loans pursuant to section 
     7(b), and to carry out title IV of the Small

[[Page H11071]]

     Business Investment Act of 1958, including salaries and 
     expenses of the Administration.
       ``(B) Notwithstanding any other provision of this 
     paragraph, for fiscal year 2002--
       ``(i) no funds are authorized to be used as loan capital 
     for the loan program authorized by section 7(a)(21) except by 
     transfer from another Federal department or agency to the 
     Administration, unless the program level authorized for 
     general business loans under paragraph (1)(B)(i) is fully 
     funded; and
       ``(ii) the Administration may not approve loans on its own 
     behalf or on behalf of any other Federal department or 
     agency, by contract or otherwise, under terms and conditions 
     other than those specifically authorized under this Act or 
     the Small Business Investment Act of 1958, except that it may 
     approve loans under section 7(a)(21) of this Act in gross 
     amounts of not more than $1,250,000.
       ``(i) Fiscal Year 2003.--
       ``(1) Program levels.--The following program levels are 
     authorized for fiscal year 2003:
       ``(A) For the programs authorized by this Act, the 
     Administration is authorized to make--
       ``(i) $70,000,000 in technical assistance grants as 
     provided in section 7(m); and
       ``(ii) $100,000,000 in direct loans, as provided in 7(m).
       ``(B) For the programs authorized by this Act, the 
     Administration is authorized to make $21,550,000,000 in 
     deferred participation loans and other financings. Of such 
     sum, the Administration is authorized to make--
       ``(i) $16,000,000,000 in general business loans as provided 
     in section 7(a);
       ``(ii) $5,000,000,000 in financings as provided in section 
     7(a)(13) of this Act and section 504 of the Small Business 
     Investment Act of 1958;
       ``(iii) $500,000,000 in loans as provided in section 
     7(a)(21); and
       ``(iv) $50,000,000 in loans as provided in section 7(m).
       ``(C) For the programs authorized by title III of the Small 
     Business Investment Act of 1958, the Administration is 
     authorized to make--
       ``(i) $4,000,000,000 in purchases of participating 
     securities; and
       ``(ii) $3,000,000,000 in guarantees of debentures.
       ``(D) For the programs authorized by part B of title IV of 
     the Small Business Investment Act of 1958, the Administration 
     is authorized to enter into guarantees not to exceed 
     $6,000,000,000 of which not more than 50 percent may be in 
     bonds approved pursuant to section 411(a)(3) of that Act.
       ``(E) The Administration is authorized to make grants or 
     enter into cooperative agreements for a total amount of 
     $7,000,000 for the Service Corps of Retired Executives 
     program authorized by section 8(b)(1).
       ``(2) Additional authorizations.--
       ``(A) There are authorized to be appropriated to the 
     Administration for fiscal year 2003 such sums as may be 
     necessary to carry out the provisions of this Act not 
     elsewhere provided for, including administrative expenses and 
     necessary loan capital for disaster loans pursuant to section 
     7(b), and to carry out title IV of the Small Business 
     Investment Act of 1958, including salaries and expenses of 
     the Administration.
       ``(B) Notwithstanding any other provision of this 
     paragraph, for fiscal year 2003--
       ``(i) no funds are authorized to be used as loan capital 
     for the loan program authorized by section 7(a)(21) except by 
     transfer from another Federal department or agency to the 
     Administration, unless the program level authorized for 
     general business loans under paragraph (1)(B)(i) is fully 
     funded; and
       ``(ii) the Administration may not approve loans on its own 
     behalf or on behalf of any other Federal department or 
     agency, by contract or otherwise, under terms and conditions 
     other than those specifically authorized under this Act or 
     the Small Business Investment Act of 1958, except that it may 
     approve loans under section 7(a)(21) of this Act in gross 
     amounts of not more than $1,250,000.''.

     SEC. 503. ADDITIONAL REAUTHORIZATIONS.

       (a) Drug-Free Workplace Program.--Section 27 of the Small 
     Business Act (15 U.S.C. 654) is amended--
       (1) in the section heading, by striking ``drug-free 
     workplace demonstration program'' and inserting ``paul d. 
     coverdell drug-free workplace program''; and
       (2) in subsection (g)(1), by striking ``$10,000,000 for 
     fiscal years 1999 and 2000'' and inserting ``$5,000,000 for 
     each of fiscal years 2001 through 2003''.
       (b) HUBZone Program.--Section 31 of the Small Business Act 
     (15 U.S.C. 657a) is amended by adding at the end the 
     following:
       ``(d) Authorization of Appropriations.--There is authorized 
     to be appropriated to carry out the program established by 
     this section $10,000,000 for each of fiscal years 2001 
     through 2003.''.
       (c) Very Small Business Concerns Program.--Section 304(i) 
     of the Small Business Administration Reauthorization and 
     Amendments Act of 1994 (Public Law 103-403; 15 U.S.C. 644 
     note) is amended by striking ``September 30, 2000'' and 
     inserting ``September 30, 2003''.
       (d) Socially and Economically Disadvantaged Businesses 
     Program.--Section 7102(c) of the Federal Acquisition 
     Streamlining Act of 1994 (Public Law 103-355; 15 U.S.C. 644 
     note) is amended by striking ``September 30, 2000'' and 
     inserting ``September 30, 2003''.
       (e) SBDC Services.--Section 21(c)(3)(T) of the Small 
     Business Act (15 U.S.C. 648(c)(3)(T)) is amended by striking 
     ``2000'' and inserting ``2003''.

     SEC. 504. COSPONSORSHIP.

       (a) In General.--Section 8(b)(1)(A) of the Small Business 
     Act (15 U.S.C. 637(b)(1)(A)) is amended to read as follows:
       ``(1)(A) to provide--
       ``(i) technical, managerial, and informational aids to 
     small business concerns--
       ``(I) by advising and counseling on matters in connection 
     with Government procurement and policies, principles, and 
     practices of good management;
       ``(II) by cooperating and advising with--

       ``(aa) voluntary business, professional, educational, and 
     other nonprofit organizations, associations, and institutions 
     (except that the Administration shall take such actions as it 
     determines necessary to ensure that such cooperation does not 
     constitute or imply an endorsement by the Administration of 
     the organization or its products or services, and shall 
     ensure that it receives appropriate recognition in all 
     printed materials); and
       ``(bb) other Federal and State agencies;

       ``(III) by maintaining a clearinghouse for information on 
     managing, financing, and operating small business 
     enterprises; and
       ``(IV) by disseminating such information, including through 
     recognition events, and by other activities that the 
     Administration determines to be appropriate; and
       ``(ii) through cooperation with a profit-making concern 
     (referred to in this paragraph as a `cosponsor'), training, 
     information, and education to small business concerns, except 
     that the Administration shall--
       ``(I) take such actions as it determines to be appropriate 
     to ensure that--

       ``(aa) the Administration receives appropriate recognition 
     and publicity;
       ``(bb) the cooperation does not constitute or imply an 
     endorsement by the Administration of any product or service 
     of the cosponsor;
       ``(cc) unnecessary promotion of the products or services of 
     the cosponsor is avoided; and
       ``(dd) utilization of any 1 cosponsor in a marketing area 
     is minimized; and

       ``(II) develop an agreement, executed on behalf of the 
     Administration by an employee of the Administration in 
     Washington, the District of Columbia, that provides, at a 
     minimum, that--

       ``(aa) any printed material to announce the cosponsorship 
     or to be distributed at the cosponsored activity, shall be 
     approved in advance by the Administration;
       ``(bb) the terms and conditions of the cooperation shall be 
     specified;
       ``(cc) only minimal charges may be imposed on any small 
     business concern to cover the direct costs of providing the 
     assistance;
       ``(dd) the Administration may provide to the cosponsorship 
     mailing labels, but not lists of names and addresses of small 
     business concerns compiled by the Administration;
       ``(ee) all printed materials containing the names of both 
     the Administration and the cosponsor shall include a 
     prominent disclaimer that the cooperation does not constitute 
     or imply an endorsement by the Administration of any product 
     or service of the cosponsor; and
       ``(ff) the Administration shall ensure that it receives 
     appropriate recognition in all cosponsorship printed 
     materials.''.

       (b) Extension of Cosponsorship Authority.--Section 
     401(a)(2) of the Small Business Administration 
     Reauthorization and Amendments Act of 1994 (15 U.S.C. 637 
     note) is amended by striking ``September 30, 2000'' and 
     inserting ``September 30, 2003''.
                       TITLE VI--HUBZONE PROGRAM
                 Subtitle A--HUBZones in Native America

     SEC. 601. SHORT TITLE.

       This subtitle may be cited as the ``HUBZones in Native 
     America Act of 2000''.

     SEC. 602. HUBZONE SMALL BUSINESS CONCERN.

       Section 3(p)(3) of the Small Business Act (15 U.S.C. 
     632(p)(3)) is amended to read as follows:
       ``(3) Hubzone small business concern.--The term `HUBZone 
     small business concern' means--
       ``(A) a small business concern that is owned and controlled 
     by 1 or more persons, each of whom is a United States 
     citizen;
       ``(B) a small business concern that is--
       ``(i) an Alaska Native Corporation owned and controlled by 
     Natives (as determined pursuant to section 29(e)(1) of the 
     Alaska Native Claims Settlement Act (43 U.S.C. 1626(e)(1))); 
     or
       ``(ii) a direct or indirect subsidiary corporation, joint 
     venture, or partnership of an Alaska Native Corporation 
     qualifying pursuant to section 29(e)(1) of the Alaska Native 
     Claims Settlement Act (43 U.S.C. 1626(e)(1)), if that 
     subsidiary, joint venture, or partnership is owned and 
     controlled by Natives (as determined pursuant to section 
     29(e)(2)) of the Alaska Native Claims Settlement Act (43 
     U.S.C. 1626(e)(2))); or
       ``(C) a small business concern--
       ``(i) that is wholly owned by 1 or more Indian tribal 
     governments, or by a corporation that is wholly owned by 1 or 
     more Indian tribal governments; or
       ``(ii) that is owned in part by 1 or more Indian tribal 
     governments, or by a corporation that is wholly owned by 1 or 
     more Indian tribal governments, if all other owners are 
     either United States citizens or small business concerns.''.

     SEC. 603. QUALIFIED HUBZONE SMALL BUSINESS CONCERN.

       (a) In General.--Section 3(p)(5)(A)(i) of the Small 
     Business Act (15 U.S.C. 632(p)(5)(A)(i)) is amended by 
     striking subclauses (I) and (II) and inserting the following:

       ``(I) it is a HUBZone small business concern--

       ``(aa) pursuant to subparagraph (A) or (B) of paragraph 
     (3), and that its principal office is located in a HUBZone 
     and not fewer than 35 percent of its employees reside in a 
     HUBZone; or
       ``(bb) pursuant to paragraph (3)(C), and not fewer than 35 
     percent of its employees engaged in performing a contract 
     awarded to the small business concern on the basis of a 
     preference provided under section 31(b) reside within any 
     Indian reservation governed by 1 or more of the tribal 
     government owners, or reside within any HUBZone adjoining any 
     such Indian reservation;

[[Page H11072]]

       ``(II) the small business concern will attempt to maintain 
     the applicable employment percentage under subclause (I) 
     during the performance of any contract awarded to the small 
     business concern on the basis of a preference provided under 
     section 31(b); and''.

       (b) Clarifying Amendment.--Section 3(p)(5)(D)(i) of the 
     Small Business Act (15 U.S.C. 632(p)(5)(D)(i)) is amended by 
     inserting ``once the Administrator has made the certification 
     required by subparagraph (A)(i) regarding a qualified HUBZone 
     small business concern and has determined that subparagraph 
     (A)(ii) does not apply to that concern,'' before ``include''.

     SEC. 604. OTHER DEFINITIONS.

       Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) 
     is amended by adding at the end the following:
       ``(6) Native american small business concerns.--
       ``(A) Alaska native corporation.--The term `Alaska Native 
     Corporation' has the same meaning as the term `Native 
     Corporation' in section 3 of the Alaska Native Claims 
     Settlement Act (43 U.S.C. 1602).
       ``(B) Alaska native village.--The term `Alaska Native 
     Village' has the same meaning as the term `Native village' in 
     section 3 of the Alaska Native Claims Settlement Act (43 
     U.S.C. 1602).
       ``(C) Indian reservation.--The term `Indian reservation'--
       ``(i) has the same meaning as the term `Indian country' in 
     section 1151 of title 18, United States Code, except that 
     such term does not include--

       ``(I) any lands that are located within a State in which a 
     tribe did not exercise governmental jurisdiction on the date 
     of enactment of this paragraph, unless that tribe is 
     recognized after that date of enactment by either an Act of 
     Congress or pursuant to regulations of the Secretary of the 
     Interior for the administrative recognition that an Indian 
     group exists as an Indian tribe (part 83 of title 25, Code of 
     Federal Regulations); and
       ``(II) lands taken into trust or acquired by an Indian 
     tribe after the date of enactment of this paragraph if such 
     lands are not located within the external boundaries of an 
     Indian reservation or former reservation or are not 
     contiguous to the lands held in trust or restricted status on 
     that date of enactment; and

       ``(ii) in the State of Oklahoma, means lands that--

       ``(I) are within the jurisdictional areas of an Oklahoma 
     Indian tribe (as determined by the Secretary of the 
     Interior); and
       ``(II) are recognized by the Secretary of the Interior as 
     eligible for trust land status under part 151 of title 25, 
     Code of Federal Regulations (as in effect on the date of 
     enactment of this paragraph).''.

                  Subtitle B--Other HUBZone Provisions

     SEC. 611. DEFINITIONS.

       (a) Qualified Census Tract.--Section 3(p)(4)(A) of the 
     Small Business Act (15 U.S.C. 632(p)(4)(A)) is amended by 
     striking ``(I)''.
       (b) Qualified Nonmetropolitan County.--Section 3(p)(4) of 
     the Small Business Act (15 U.S.C. 632(p)(4)) is amended by 
     striking subparagraph (B) and inserting the following:
       ``(B) Qualified nonmetropolitan county.--The term 
     `qualified nonmetropolitan county' means any county--
       ``(i) that was not located in a metropolitan statistical 
     area (as defined in section 143(k)(2)(B) of the Internal 
     Revenue Code of 1986) at the time of the most recent census 
     taken for purposes of selecting qualified census tracts under 
     section 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986; 
     and
       ``(ii) in which--

       ``(I) the median household income is less than 80 percent 
     of the nonmetropolitan State median household income, based 
     on the most recent data available from the Bureau of the 
     Census of the Department of Commerce; or
       ``(II) the unemployment rate is not less than 140 percent 
     of the Statewide average unemployment rate for the State in 
     which the county is located, based on the most recent data 
     available from the Secretary of Labor.''.

     SEC. 612. ELIGIBLE CONTRACTS.

       (a) Commodities Contracts.--Section 31(b)(3) of the Small 
     Business Act (15 U.S.C. 657a(b)(3)) is amended--
       (1) by striking ``In any'' and inserting the following:
       ``(A) In general.--Subject to subparagraph (B), in any''; 
     and
       (2) by adding at the end the following:
       ``(B) Procurement of commodities.--For purchases by the 
     Secretary of Agriculture of agricultural commodities, the 
     price evaluation preference shall be--
       ``(i) 10 percent, for the portion of a contract to be 
     awarded that is not greater than 25 percent of the total 
     volume being procured for each commodity in a single 
     invitation;
       ``(ii) 5 percent, for the portion of a contract to be 
     awarded that is greater than 25 percent, but not greater than 
     40 percent, of the total volume being procured for each 
     commodity in a single invitation; and
       ``(iii) zero, for the portion of a contract to be awarded 
     that is greater than 40 percent of the total volume being 
     procured for each commodity in a single invitation.
       ``(C) Treatment of preference.--A contract awarded to a 
     HUBZone small business concern under a preference described 
     in subparagraph (B) shall not be counted toward the 
     fulfillment of any requirement partially set aside for 
     competition restricted to small business concerns.''.
       (b) Definitions.--Section 3(p) of the Small Business Act 
     (15 U.S.C. 632(p)), as amended by this Act, is amended--
       (1) in paragraph (5)(A)(i)(III)--
       (A) in item (aa), by striking ``and'' at the end; and
       (B) by adding at the end the following:
       ``(cc) in the case of a contract for the procurement by the 
     Secretary of Agriculture of agricultural commodities, none of 
     the commodity being procured will be obtained by the prime 
     contractor through a subcontract for the purchase of the 
     commodity in substantially the final form in which it is to 
     be supplied to the Government; and''; and
       (2) by adding at the end the following:
       ``(7) Agricultural commodity.--The term `agricultural 
     commodity' has the same meaning as in section 102 of the 
     Agricultural Trade Act of 1978 (7 U.S.C. 5602).''.

     SEC. 613. HUBZONE REDESIGNATED AREAS.

       Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) 
     is amended--
       (1) in paragraph (1)--
       (A) in subparagraph (B), by striking ``or'' at the end;
       (B) in subparagraph (C), by striking the period at the end 
     and inserting ``; or''; and
       (C) by adding at the end the following:
       ``(D) redesignated areas.''; and
       (2) in paragraph (4), by adding at the end the following:
       ``(C) Redesignated area.--The term `redesignated area' 
     means any census tract that ceases to be qualified under 
     subparagraph (A) and any nonmetropolitan county that ceases 
     to be qualified under subparagraph (B), except that a census 
     tract or a nonmetropolitan county may be a `redesignated 
     area' only for the 3-year period following the date on which 
     the census tract or nonmetropolitan county ceased to be so 
     qualified.''.

     SEC. 614. COMMUNITY DEVELOPMENT.

       Section 3(p) of the Small Business Act (15 U.S.C. 632(p)), 
     as amended by this Act, is amended--
       (1) in paragraph (3)--
       (A) in subparagraph (B), by striking ``or'' at the end;
       (B) in subparagraph (C), by striking the period at the end 
     and inserting ``; or''; and
       (C) by adding at the end the following:
       ``(D) a small business concern that is--
       ``(i) wholly owned by a community development corporation 
     that has received financial assistance under Part 1 of 
     Subchapter A of the Community Economic Development Act of 
     1981 (42 U.S.C. 9805 et seq.); or
       ``(ii) owned in part by 1 or more community development 
     corporations, if all other owners are either United States 
     citizens or small business concerns.''; and
       (2) in paragraph (5)(A)(i)(I)(aa), by striking 
     ``subparagraph (A) or (B)'' and inserting ``subparagraph (A), 
     (B), or (D)''.

     SEC. 615. REFERENCE CORRECTIONS.

       (a) Section 3.--Section 3(p)(5)(C) of the Small Business 
     Act (15 U.S.C. 632(p)(5)(C)) is amended by striking 
     ``subclause (IV) and (V) of subparagraph (A)(i)'' and 
     inserting ``items (aa) and (bb) of subparagraph 
     (A)(i)(III)''.
       (b) Section 8.--Section 8(d)(4)(D) of the Small Business 
     Act (15 U.S.C. 637(d)(4)(D)) is amended by inserting 
     ``qualified HUBZone small business concerns,'' after ``small 
     business concerns,''.
      TITLE VII--NATIONAL WOMEN'S BUSINESS COUNCIL REAUTHORIZATION

     SEC. 701. SHORT TITLE.

       This title may be cited as the ``National Women's Business 
     Council Reauthorization Act of 2000''.

     SEC. 702. MEMBERSHIP OF THE COUNCIL.

       Section 407 of the Women's Business Ownership Act of 1988 
     (15 U.S.C. 631 note) is amended--
       (1) in subsection (a), by striking ``Not later'' and all 
     that follows through ``the President'' and inserting ``The 
     President'';
       (2) in subsection (b)--
       (A) by striking ``Not later'' and all that follows through 
     ``the Administrator'' and inserting ``The Administrator''; 
     and
       (B) by striking ``the Assistant Administrator of the Office 
     of Women's Business Ownership and'';
       (3) in subsection (d), by striking ``, except that'' and 
     all that follows through the end of the subsection and 
     inserting a period; and
       (4) in subsection (h), by striking ``Not later'' and all 
     that follows through ``the Administrator'' and inserting 
     ``The Administrator''.

     SEC. 703. REPEAL OF PROCUREMENT PROJECT.

       Section 409 of the Women's Business Ownership Act of 1988 
     (15 U.S.C. 631 note) is repealed.

     SEC. 704. STUDIES AND OTHER RESEARCH.

       Section 410 of the Women's Business Ownership Act of 1988 
     (15 U.S.C. 631 note) is amended to read as follows:

     ``SEC. 409. STUDIES AND OTHER RESEARCH.

       ``(a) In General.--The Council may conduct such studies and 
     other research relating to the award of Federal prime 
     contracts and subcontracts to women-owned businesses, to 
     access to credit and investment capital by women 
     entrepreneurs, or to other issues relating to women-owned 
     businesses, as the Council determines to be appropriate.
       ``(b) Contract Authority.--In conducting any study or other 
     research under this section, the Council may contract with 1 
     or more public or private entities.''.

     SEC. 705. AUTHORIZATION OF APPROPRIATIONS.

       Section 411 of the Women's Business Ownership Act of 1988 
     (15 U.S.C. 631 note) is amended to read as follows:

     ``SEC. 410. AUTHORIZATION OF APPROPRIATIONS.

       ``(a) In General.--There is authorized to be appropriated 
     to carry out this title $1,000,000, for each of fiscal years 
     2001 through 2003, of which $550,000 shall be available in 
     each such fiscal year to carry out section 409.
       ``(b) Budget Review.--No amount made available under this 
     section for any fiscal year may be obligated or expended by 
     the Council before the date on which the Council reviews and 
     approves the operating budget of the Council to

[[Page H11073]]

     carry out the responsibilities of the Council for that fiscal 
     year.''.
                  TITLE VIII--MISCELLANEOUS PROVISIONS

     SEC. 801. LOAN APPLICATION PROCESSING.

       (a) Study.--The Administrator of the Small Business 
     Administration shall conduct a study to determine the average 
     time that the Administration requires to process an 
     application for each type of loan or loan guarantee made 
     under the Small Business Act (15 U.S.C. 631 et seq.).
       (b) Transmittal.--Not later than 1 year after the date of 
     enactment of this Act, the Administrator shall transmit to 
     Congress the results of the study conducted under subsection 
     (a).

     SEC. 802. APPLICATION OF OWNERSHIP REQUIREMENTS.

       (a) Small Business Act.--Section 7(a) of the Small Business 
     Act (15 U.S.C. 636(a)) is amended by adding at the end the 
     following:
       ``(30) Ownership requirements.--Ownership requirements to 
     determine the eligibility of a small business concern that 
     applies for assistance under any credit program under this 
     Act shall be determined without regard to any ownership 
     interest of a spouse arising solely from the application of 
     the community property laws of a State for purposes of 
     determining marital interests.''.
       (b) Small Business Investment Act of 1958.--Section 502 of 
     the Small Business Investment Act of 1958 (15 U.S.C. 696) is 
     amended by adding at the end the following:
       ``(6) Ownership requirements.--Ownership requirements to 
     determine the eligibility of a small business concern that 
     applies for assistance under any credit program under this 
     title shall be determined without regard to any ownership 
     interest of a spouse arising solely from the application of 
     the community property laws of a State for purposes of 
     determining marital interests.''.

     SEC. 803. SUBCONTRACTING PREFERENCE FOR VETERANS.

       Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) 
     is amended--
       (1) in paragraph (1), by inserting ``small business 
     concerns owned and controlled by veterans,'' after ``small 
     business concerns,'' the first place that term appears in 
     each of the first and second sentences;
       (2) in paragraph (3)--
       (A) in subparagraph (A), by inserting ``small business 
     concerns owned and controlled by service-disabled veterans,'' 
     after ``small business concerns owned and controlled by 
     veterans,'' in each of the first and second sentences; and
       (B) in subparagraph (F), by inserting ``small business 
     concern owned and controlled by service-disabled veterans,'' 
     after ``small business concern owned and controlled by 
     veterans,''; and
       (3) in each of paragraphs (4)(D), (4)(E), (6)(A), (6)(C), 
     (6)(F), and (10)(B), by inserting ``small business concerns 
     owned and controlled by service-disabled veterans,'' after 
     ``small business concerns owned and controlled by 
     veterans,''.

     SEC. 804. SMALL BUSINESS DEVELOPMENT CENTER PROGRAM FUNDING.

       (a) Authorization.--
       (1) In general.--Section 20(a)(1) of the Small Business Act 
     (15 U.S.C. 631 note) is amended by striking ``For fiscal year 
     1985'' and all that follows through ``expended.'' and 
     inserting the following: ``For fiscal year 2000 and each 
     fiscal year thereafter, there are authorized to be 
     appropriated such sums as may be necessary and appropriate, 
     to remain available until expended, and to be available 
     solely--
       ``(A) to carry out the Small Business Development Center 
     Program under section 21, but not to exceed the annual 
     funding level, as specified in section 21(a);
       ``(B) to pay the expenses of the National Small Business 
     Development Center Advisory Board, as provided in section 
     21(i);
       ``(C) to pay the expenses of the information sharing 
     system, as provided in section 21(c)(8);
       ``(D) to pay the expenses of the association referred to in 
     section 21(a)(3)(A) for conducting the certification program, 
     as provided in section 21(k)(2); and
       ``(E) to pay the expenses of the Administration, including 
     salaries of examiners, for conducting examinations as part of 
     the certification program conducted by the association 
     referred to in section 21(a)(3)(A).''.
       (2) Technical amendment.--Section 20(a) of the Small 
     Business Act (15 U.S.C. 631 note) is amended by moving the 
     margins of paragraphs (3) and (4), including subparagraphs 
     (A) and (B) of paragraph (4), 2 ems to the left.
       (b) Funding Formula.--Section 21(a)(4)(C) of the Small 
     Business Act (15 U.S.C. 648(a)(4)(C)) is amended to read as 
     follows:
       ``(C) Funding formula.--
       ``(i) In general.--Subject to clause (iii), the amount of a 
     formula grant received by a State under this subparagraph 
     shall be equal to an amount determined in accordance with the 
     following formula:
       ``(I) The annual amount made available under section 20(a) 
     for the Small Business Development Center Program, less any 
     reductions made for expenses authorized by clause (v) of this 
     subparagraph, shall be divided on a pro rata basis, based on 
     the percentage of the population of each State, as compared 
     to the population of the United States.
       ``(II) If the pro rata amount calculated under subclause 
     (I) for any State is less than the minimum funding level 
     under clause (iii), the Administration shall determine the 
     aggregate amount necessary to achieve that minimum funding 
     level for each such State.
       ``(III) The aggregate amount calculated under subclause 
     (II) shall be deducted from the amount calculated under 
     subclause (I) for States eligible to receive more than the 
     minimum funding level. The deductions shall be made on a pro 
     rata basis, based on the population of each such State, as 
     compared to the total population of all such States.
       ``(IV) The aggregate amount deducted under subclause (III) 
     shall be added to the grants of those States that are not 
     eligible to receive more than the minimum funding level in 
     order to achieve the minimum funding level for each such 
     State, except that the eligible amount of a grant to any 
     State shall not be reduced to an amount below the minimum 
     funding level.
       ``(ii) Grant determination.--The amount of a grant that a 
     State is eligible to apply for under this subparagraph shall 
     be the amount determined under clause (i), subject to any 
     modifications required under clause (iii), and shall be based 
     on the amount available for the fiscal year in which 
     performance of the grant commences, but not including amounts 
     distributed in accordance with clause (iv). The amount of a 
     grant received by a State under any provision of this 
     subparagraph shall not exceed the amount of matching funds 
     from sources other than the Federal Government, as required 
     under subparagraph (A).
       ``(iii) Minimum funding level.--The amount of the minimum 
     funding level for each State shall be determined for each 
     fiscal year based on the amount made available for that 
     fiscal year to carry out this section, as follows:
       ``(I) If the amount made available is not less than 
     $81,500,000 and not more than $90,000,000, the minimum 
     funding level shall be $500,000.
       ``(II) If the amount made available is less than 
     $81,500,000, the minimum funding level shall be the remainder 
     of $500,000 minus a percentage of $500,000 equal to the 
     percentage amount by which the amount made available is less 
     than $81,500,000.
       ``(III) If the amount made available is more than 
     $90,000,000, the minimum funding level shall be the sum of 
     $500,000 plus a percentage of $500,000 equal to the 
     percentage amount by which the amount made available exceeds 
     $90,000,000.
       ``(iv) Distributions.--Subject to clause (iii), if any 
     State does not apply for, or use, its full funding 
     eligibility for a fiscal year, the Administration shall 
     distribute the remaining funds as follows:
       ``(I) If the grant to any State is less than the amount 
     received by that State in fiscal year 2000, the 
     Administration shall distribute such remaining funds, on a 
     pro rata basis, based on the percentage of shortage of each 
     such State, as compared to the total amount of such remaining 
     funds available, to the extent necessary in order to increase 
     the amount of the grant to the amount received by that State 
     in fiscal year 2000, or until such funds are exhausted, 
     whichever first occurs.
       ``(II) If any funds remain after the application of 
     subclause (I), the remaining amount may be distributed as 
     supplemental grants to any State, as the Administration 
     determines, in its discretion, to be appropriate, after 
     consultation with the association referred to in subsection 
     (a)(3)(A).
       ``(v) Use of amounts.--
       ``(I) In general.--Of the amounts made available in any 
     fiscal year to carry out this section--

       ``(aa) not more than $500,000 may be used by the 
     Administration to pay expenses enumerated in subparagraphs 
     (B) through (D) of section 20(a)(1); and
       ``(bb) not more than $500,000 may be used by the 
     Administration to pay the examination expenses enumerated in 
     section 20(a)(1)(E).

       ``(II) Limitation.--No funds described in subclause (I) may 
     be used for examination expenses under section 20(a)(1)(E) if 
     the usage would reduce the amount of grants made available 
     under clause (i)(I) of this subparagraph to less than 
     $85,000,000 (after excluding any amounts provided in 
     appropriations Acts for specific institutions or for purposes 
     other than the general small business development center 
     program) or would further reduce the amount of such grants 
     below such amount.
       ``(vi) Exclusions.--Grants provided to a State by the 
     Administration or another Federal agency to carry out 
     subsection (a)(6) or (c)(3)(G), or for supplemental grants 
     set forth in clause (iv)(II) of this subparagraph, shall not 
     be included in the calculation of maximum funding for a State 
     under clause (ii) of this subparagraph.
       ``(vii) Authorization of appropriations.--There is 
     authorized to be appropriated to carry out this subparagraph 
     $125,000,000 for each of fiscal years 2001, 2002, and 2003.
       ``(viii) State defined.--In this subparagraph, the term 
     `State' means each of the several States, the District of 
     Columbia, the Commonwealth of Puerto Rico, the Virgin 
     Islands, Guam, and American Samoa.''.

     SEC. 805. SURETY BONDS.

       (a) Contract Amounts.--Section 411 of the Small Business 
     Investment Act of 1958 (15 U.S.C. 694b) is amended--
       (1) in subsection (a)(1), by striking ``$1,250,000'' and 
     inserting ``$2,000,000''; and
       (2) in subsection (e)(2), by striking ``$1,250,000'' and 
     inserting ``$2,000,000''.
       (b) Extension of Certain Authority.--Section 207 of the 
     Small Business Administration Reauthorization and Amendment 
     Act of 1988 (15 U.S.C. 694b note) is amended by striking 
     ``2000'' and inserting ``2003''.

     SEC. 806. SIZE STANDARDS.

       (a) Industry Classifications.--Section 15(a) of the Small 
     Business Act (15 U.S.C. 644(a)) is amended in the eighth 
     sentence, by striking ``four-digit standard'' and all that 
     follows through ``published'' and inserting ``definition of a 
     `United States industry' under the North American Industry 
     Classification System, as established''.
       (b) Annual Receipts.--Section 3(a)(1) of the Small Business 
     Act (15 U.S.C. 632(a)(1)) is amended by striking ``$500,000'' 
     and inserting ``$750,000''.

[[Page H11074]]

     SEC. 807. NATIVE HAWAIIAN ORGANIZATIONS UNDER SECTION 8(A).

       Section 8(a)(15)(A) of the Small Business Act (15 U.S.C. 
     637(a)(15)(A)) is amended to read as follows:
       ``(A) is a nonprofit corporation that has filed articles of 
     incorporation with the director (or the designee thereof) of 
     the Hawaii Department of Commerce and Consumer Affairs, or 
     any successor agency,''.

     SEC. 808. NATIONAL VETERANS BUSINESS DEVELOPMENT CORPORATION 
                   CORRECTION.

       Section 33(k) of the Small Business Act (15 U.S.C. 657c(k)) 
     is amended--
       (1) by striking paragraph (1) and inserting the following:
       ``(1) In general.--Subject to paragraph (2), there are 
     authorized to be appropriated to the Corporation to carry out 
     this section--
       ``(A) $4,000,000 for fiscal year 2001;
       ``(B) $4,000,000 for fiscal year 2002;
       ``(C) $2,000,000 for fiscal year 2003; and
       ``(D) $2,000,000 for fiscal year 2004.'';
       (2) in paragraph (2)(A), by striking ``2001'' each place it 
     appears and inserting ``2002''; and
       (3) in paragraph (2)(B), by striking ``2002 or 2003'' and 
     inserting ``2003 or 2004''.

     SEC. 809. PRIVATE SECTOR RESOURCES FOR SCORE.

       Section 8(b)(1)(B) of the Small Business Act (15 U.S.C. 
     637(b)(1)(B)) is amended by adding at the end the following: 
     ``Notwithstanding any other provision of law, SCORE may 
     solicit cash and in-kind contributions from the private 
     sector to be used to carry out its functions under this Act, 
     and may use payments made by the Administration pursuant to 
     this subparagraph for such solicitation.''.

     SEC. 810. CONTRACT DATA COLLECTION.

       (a) Definition of Bundled Contract.--Section 3(o)(1) of the 
     Small Business Act (15 U.S.C. 632(o)(1)) is amended to read 
     as follows:
       ``(1) Bundled contract.--The term `bundled contract' means 
     a contract, or a modification of an existing contract, that 
     is entered into to meet--
       ``(A) requirements that are consolidated in a bundling of 
     contract requirements regardless of whether the contracting 
     agency has conducted a study of the effects of the 
     solicitation for the contract on civilian or military 
     personnel of the United States; or
       ``(B) any procurement requirement that permits the 
     consolidation of 2 or more procurement requirements.''.
       (b) Analysis Required With Respect to Bundled Contracts.--
     Section 15(e)(2)(A) of the Small Business Act (15 U.S.C. 
     644(e)(2)(A)) is amended--
       (1) by striking ``(A) In general.--'' and inserting the 
     following:
       ``(A) Determination of necessity.--
       ``(i) In general.--''; and
       (2) by adding at the end the following:
       ``(ii) Identification of displaced prime contractors.--The 
     market research required by clause (i) shall identify each 
     small business concern that will be displaced as a prime 
     contractor as a result of the award of a contract described 
     in such clause, and the Administrator shall maintain such 
     data for a period of not less than 10 years.
       ``(iii) Bundled contracts subject to recompetition.--

       ``(I) In general.--Not less than 30 days before issuing a 
     solicitation to recompete a previously bundled contract as a 
     contract that continues to contain the bundling of contract 
     requirements of the original bundled contract, the head of 
     the agency shall notify the Administrator and transmit a 
     report to the Administrator containing the results of the 
     market research required under clause (i).
       ``(II) Review and determination.--The Administrator shall, 
     not later than 30 days after notification under subclause 
     (I), review and determine--

       ``(aa) the amount of savings and benefits (in accordance 
     with this subsection) achieved under the bundling of contract 
     requirements; and
       ``(bb) whether such savings and benefits will continue to 
     be realized if the contract remains bundled and whether such 
     benefits would be greater if the procurement requirements 
     were divided into separate solicitations suitable for award 
     to small business concerns.

       ``(II) Appeal.--

       ``(aa) In general.--If, after conducting a review under 
     subclause (II), the Administrator reaches a conclusion with 
     respect to the savings and benefits of the recompeted 
     bundle different than that reached by the head of the 
     contracting agency as part of the market analysis required 
     under clause (i) and such head proceeds with a 
     solicitation for the contract, the Administrator shall 
     file an appeal with the Administrator of the Office of 
     Federal Procurement Policy.
       ``(bb) Notice.--If the Administrator files an appeal under 
     item (aa), the Administrator shall notify the head of the 
     contracting agency.
       ``(cc) Filing of reports.--Not less than 5 calendar days 
     after notice is given under item (bb), the Administrator 
     shall submit a report containing information on the 
     Administrator's conclusions and determinations under 
     subclause (II), and the head of the contracting agency shall 
     submit the report described in subclause (I), to the 
     Administrator of the Office of Federal Procurement Policy.
       ``(dd) Decision.--Not later than 7 calendar days after the 
     submission of reports under item (cc), the Administrator of 
     the Office of Federal Procurement Policy shall determine 
     whether the subject contract shall be recompeted as bundled 
     contract.''.
       (c) Annual Report on Contract Bundling.--Section 15 of the 
     Small Business Act (15 U.S.C. 644) is amended by adding at 
     the end the following:
       ``(p) Annual Report on Contract Bundling.--
       ``(1) In general.--Not later than 1 year after the date of 
     enactment of this subsection, and annually in March 
     thereafter, the Administration shall transmit a report on 
     contract bundling to the Committees on Small Business of the 
     House of Representatives and the Senate.
       ``(2) Contents.--Each report transmitted under paragraph 
     (1) shall include--
       ``(A) data on the number, arranged by industrial 
     classification, of small business concerns displaced as prime 
     contractors as a result of the award of bundled contracts by 
     Federal agencies; and
       ``(B) a description of the activities with respect to 
     previously bundled contracts of each Federal agency during 
     the preceding year, including--
       ``(i) data on the number and total dollar amount of all 
     contract requirements that were bundled; and
       ``(ii) with respect to each bundled contract, data or 
     information on--

       ``(I) the justification for the bundling of contract 
     requirements;
       ``(II) the cost savings realized by bundling the contract 
     requirements over the life of the contract;
       ``(III) the extent to which maintaining the bundled status 
     of contract requirements is projected to result in continued 
     cost savings;
       ``(IV) the extent to which the bundling of contract 
     requirements complied with the contracting agency's small 
     business subcontracting plan, including the total dollar 
     value awarded to small business concerns as subcontractors 
     and the total dollar value previously awarded to small 
     business concerns as prime contractors; and
       ``(V) the impact of the bundling of contract requirements 
     on small business concerns unable to compete as prime 
     contractors for the consolidated requirements and on the 
     industries of such small business concerns, including a 
     description of any changes to the proportion of any such 
     industry that is composed of small business concerns.''.

       (d) Reporting of Bundled Contract Opportunities.--Section 
     414(a) of the Small Business Reauthorization Act of 1997 (4 
     U.S.C. 405 note) is amended--
       (1) by striking ``$5,000,000'' and inserting ``$25,000''; 
     and
       (2) by striking ``bundling of contract requirements'' and 
     inserting ``bundled contract''.
       (e) Provision of Data.--Upon the request of the 
     Administrator of the Small Business Administration, the head 
     of any contracting agency shall promptly provide to the 
     Administrator such information as the Administrator 
     determines to be necessary to carry out this section or the 
     amendments made by this section.

     SEC. 811. PROCUREMENT PROGRAM FOR WOMEN-OWNED SMALL BUSINESS 
                   CONCERNS.

       Section 8 of the Small Business Act (15 U.S.C. 637) is 
     amended by adding at the end the following:
       ``(m) Procurement Program for Women-owned Small Business 
     Concerns.--
       ``(1) Definitions.--In this subsection, the following 
     definitions apply:
       ``(A) Contracting officer.--The term `contracting officer' 
     has the meaning given such term in section 27(f)(5) of the 
     Office of Federal Procurement Policy Act (41 U.S.C. 
     423(f)(5)).
       ``(B) Small business concern owned and controlled by 
     women.--The term `small business concern owned and controlled 
     by women' has the meaning given such term in section 3(n), 
     except that ownership shall be determined without regard to 
     any community property law.
       ``(2) Authority to restrict competition.--In accordance 
     with this subsection, a contracting officer may restrict 
     competition for any contract for the procurement of goods or 
     services by the Federal Government to small business concerns 
     owned and controlled by women, if--
       ``(A) each of the concerns is not less than 51 percent 
     owned by 1 or more women who are economically disadvantaged 
     (and such ownership is determined without regard to any 
     community property law);
       ``(B) the contracting officer has a reasonable expectation 
     that 2 or more small business concerns owned and controlled 
     by women will submit offers for the contract;
       ``(C) the contract is for the procurement of goods or 
     services with respect to an industry identified by the 
     Administrator pursuant to paragraph (3);
       ``(D) the anticipated award price of the contract 
     (including options) does not exceed--
       ``(i) $5,000,000, in the case of a contract assigned an 
     industrial classification code for manufacturing; or
       ``(ii) $3,000,000, in the case of all other contracts;
       ``(E) in the estimation of the contracting officer, the 
     contract award can be made at a fair and reasonable price; 
     and
       ``(F) each of the concerns--
       ``(i) is certified by a Federal agency, a State government, 
     or a national certifying entity approved by the 
     Administrator, as a small business concern owned and 
     controlled by women; or
       ``(ii) certifies to the contracting officer that it is a 
     small business concern owned and controlled by women and 
     provides adequate documentation, in accordance with standards 
     established by the Administration, to support such 
     certification.
       ``(3) Waiver.--With respect to a small business concern 
     owned and controlled by women, the Administrator may waive 
     subparagraph (2)(A) if the Administrator determines that the 
     concern is in an industry in which small business concerns 
     owned and controlled by women are substantially 
     underrepresented.
       ``(4) Identification of industries.--The Administrator 
     shall conduct a study to identify industries in which small 
     business concerns owned

[[Page H11075]]

     and controlled by women are underrepresented with respect to 
     Federal procurement contracting.
       ``(5) Enforcement; penalties.--
       ``(A) Verification of eligibility.--In carrying out this 
     subsection, the Administrator shall establish procedures 
     relating to--
       ``(i) the filing, investigation, and disposition by the 
     Administration of any challenge to the eligibility of a small 
     business concern to receive assistance under this subsection 
     (including a challenge, filed by an interested party, 
     relating to the veracity of a certification made or 
     information provided to the Administration by a small 
     business concern under paragraph (2)(F)); and
       ``(ii) verification by the Administrator of the accuracy of 
     any certification made or information provided to the 
     Administration by a small business concern under paragraph 
     (2)(F).
       ``(B) Examinations.--The procedures established under 
     subparagraph (A) may provide for program examinations 
     (including random program examinations) by the Administrator 
     of any small business concern making a certification or 
     providing information to the Administrator under paragraph 
     (2)(F).
       ``(C) Penalties.--In addition to the penalties described in 
     section 16(d), any small business concern that is determined 
     by the Administrator to have misrepresented the status of 
     that concern as a small business concern owned and controlled 
     by women for purposes of this subsection, shall be subject 
     to--
       ``(i) section 1001 of title 18, United States Code; and
       ``(ii) sections 3729 through 3733 of title 31, United 
     States Code.
       ``(6) Provision of data.--Upon the request of the 
     Administrator, the head of any Federal department or agency 
     shall promptly provide to the Administrator such information 
     as the Administrator determines to be necessary to carry out 
     this subsection.''.
        TITLE IX--COMMUNITY RENEWAL AND NEW MARKETS INITIATIVES

     SEC. 901. NEW MARKETS VENTURE CAPITAL PROGRAM.

       (a) Short Title.--This section may be cited as the ``New 
     Markets Venture Capital Program Act of 2000''.
       (b) New Markets Venture Capital Program.--Title III of the 
     Small Business Investment Act of 1958 (15 U.S.C. 681 et seq.) 
     is amended--
       (1) in the heading for the title, by striking ``SMALL 
     BUSINESS INVESTMENT COMPANIES'' and inserting ``INVESTMENT 
     DIVISION PROGRAMS'';
       (2) by inserting before the heading for section 301 the 
     following:

            ``Part A--Small Business Investment Companies'';

     and
       (3) by adding at the end the following:

             ``Part B--New Markets Venture Capital Program

     ``SEC. 351. DEFINITIONS.

       ``In this part, the following definitions apply:
       ``(1) Developmental venture capital.--The term 
     `developmental venture capital' means capital in the form of 
     equity capital investments in businesses made with a primary 
     objective of fostering economic development in low-income 
     geographic areas. For the purposes of this paragraph, the 
     term `equity capital' has the same meaning given such term in 
     section 303(g)(4).
       ``(2) Low-income individual.--The term `low-income 
     individual' means an individual whose income (adjusted for 
     family size) does not exceed--
       ``(A) for metropolitan areas, 80 percent of the area median 
     income; and
       ``(B) for nonmetropolitan areas, the greater of--
       ``(i) 80 percent of the area median income; or
       ``(ii) 80 percent of the statewide nonmetropolitan area 
     median income.
       ``(3) Low-income geographic area.--The term `low-income 
     geographic area' means--
       ``(A) any population census tract (or in the case of an 
     area that is not tracted for population census tracts, the 
     equivalent county division, as defined by the Bureau of the 
     Census of the Department of Commerce for purposes of defining 
     poverty areas), if--
       ``(i) the poverty rate for that census tract is not less 
     than 20 percent;
       ``(ii) in the case of a tract--

       ``(I) that is located within a metropolitan area, 50 
     percent or more of the households in that census tract have 
     an income equal to less than 60 percent of the area median 
     gross income; or
       ``(II) that is not located within a metropolitan area, the 
     median household income for such tract does not exceed 80 
     percent of the statewide median household income; or

       ``(iii) as determined by the Administrator based on 
     objective criteria, a substantial population of low-income 
     individuals reside, an inadequate access to investment 
     capital exists, or other indications of economic distress 
     exist in that census tract; or
       ``(B) any area located within--
       ``(i) a HUBZone (as defined in section 3(p) of the Small 
     Business Act and the implementing regulations issued under 
     that section);
       ``(ii) an urban empowerment zone or urban enterprise 
     community (as designated by the Secretary of Housing and 
     Urban Development); or
       ``(iii) a rural empowerment zone or rural enterprise 
     community (as designated by the Secretary of Agriculture).
       ``(4) New markets venture capital company.--The term `New 
     Markets Venture Capital company' means a company that--
       ``(A) has been granted final approval by the Administrator 
     under section 354(e); and
       ``(B) has entered into a participation agreement with the 
     Administrator.
       ``(5) Operational assistance.--The term `operational 
     assistance' means management, marketing, and other technical 
     assistance that assists a small business concern with 
     business development.
       ``(6) Participation agreement.--The term `participation 
     agreement' means an agreement, between the Administrator and 
     a company granted final approval under section 354(e), that--
       ``(A) details the company's operating plan and investment 
     criteria; and
       ``(B) requires the company to make investments in smaller 
     enterprises at least 80 percent of which are located in low-
     income geographic areas.
       ``(7) Specialized small business investment company.--The 
     term `specialized small business investment company' means 
     any small business investment company that--
       ``(A) invests solely in small business concerns that 
     contribute to a well-balanced national economy by 
     facilitating ownership in such concerns by persons whose 
     participation in the free enterprise system is hampered 
     because of social or economic disadvantages;
       ``(B) is organized or chartered under State business or 
     nonprofit corporations statutes, or formed as a limited 
     partnership; and
       ``(C) was licensed under section 301(d), as in effect 
     before September 30, 1996.
       ``(8) State.--The term ``State'' means each of the several 
     States, the District of Columbia, the Commonwealth of Puerto 
     Rico, the Virgin Islands, Guam, American Samoa, the 
     Commonwealth of the Northern Mariana Islands, and any other 
     commonwealth, territory, or possession of the United States;

     ``SEC. 352. PURPOSES.

       ``The purposes of the New Markets Venture Capital Program 
     established under this part are--
       ``(1) to promote economic development and the creation of 
     wealth and job opportunities in low-income geographic areas 
     and among individuals living in such areas by encouraging 
     developmental venture capital investments in smaller 
     enterprises primarily located in such areas; and
       ``(2) to establish a developmental venture capital program, 
     with the mission of addressing the unmet equity investment 
     needs of small enterprises located in low-income geographic 
     areas, to be administered by the Administrator--
       ``(A) to enter into participation agreements with New 
     Markets Venture Capital companies;
       ``(B) to guarantee debentures of New Markets Venture 
     Capital companies to enable each such company to make 
     developmental venture capital investments in smaller 
     enterprises in low-income geographic areas; and
       ``(C) to make grants to New Markets Venture Capital 
     companies, and to other entities, for the purpose of 
     providing operational assistance to smaller enterprises 
     financed, or expected to be financed, by such companies.

     ``SEC. 353. ESTABLISHMENT.

       ``In accordance with this part, the Administrator shall 
     establish a New Markets Venture Capital Program, under which 
     the Administrator may--
       ``(1) enter into participation agreements with companies 
     granted final approval under section 354(e) for the purposes 
     set forth in section 352;
       ``(2) guarantee the debentures issued by New Markets 
     Venture Capital companies as provided in section 355; and
       ``(3) make grants to New Markets Venture Capital companies, 
     and to other entities, under section 358.

     ``SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL 
                   COMPANIES.

       ``(a) Eligibility.--A company shall be eligible to apply to 
     participate, as a New Markets Venture Capital company, in the 
     program established under this part if--
       ``(1) the company is a newly formed for-profit entity or a 
     newly formed for-profit subsidiary of an existing entity;
       ``(2) the company has a management team with experience in 
     community development financing or relevant venture capital 
     financing; and
       ``(3) the company has a primary objective of economic 
     development of low-income geographic areas.
       ``(b) Application.--To participate, as a New Markets 
     Venture Capital company, in the program established under 
     this part a company meeting the eligibility requirements set 
     forth in subsection (a) shall submit an application to the 
     Administrator that includes--
       ``(1) a business plan describing how the company intends to 
     make successful developmental venture capital investments in 
     identified low-income geographic areas;
       ``(2) information regarding the community development 
     finance or relevant venture capital qualifications and 
     general reputation of the company's management;
       ``(3) a description of how the company intends to work with 
     community organizations and to seek to address the unmet 
     capital needs of the communities served;
       ``(4) a proposal describing how the company intends to use 
     the grant funds provided under this part to provide 
     operational assistance to smaller enterprises financed by the 
     company, including information regarding whether the company 
     intends to use licensed professionals, when necessary, on the 
     company's staff or from an outside entity;
       ``(5) with respect to binding commitments to be made to the 
     company under this part, an estimate of the ratio of cash to 
     in-kind contributions;
       ``(6) a description of the criteria to be used to evaluate 
     whether and to what extent the company meets the objectives 
     of the program established under this part;

[[Page H11076]]

       ``(7) information regarding the management and financial 
     strength of any parent firm, affiliated firm, or any other 
     firm essential to the success of the company's business plan; 
     and
       ``(8) such other information as the Administrator may 
     require.
       ``(c) Conditional Approval.--
       ``(1) In general.--From among companies submitting 
     applications under subsection (b), the Administrator shall, 
     in accordance with this subsection, conditionally approve 
     companies to participate in the New Markets Venture Capital 
     Program.
       ``(2) Selection criteria.--In selecting companies under 
     paragraph (1), the Administrator shall consider the 
     following:
       ``(A) The likelihood that the company will meet the goals 
     of its business plan.
       ``(B) The experience and background of the company's 
     management team.
       ``(C) The need for developmental venture capital 
     investments in the geographic areas in which the company 
     intends to invest.
       ``(D) The extent to which the company will concentrate its 
     activities on serving the geographic areas in which it 
     intends to invest.
       ``(E) The likelihood that the company will be able to 
     satisfy the conditions under subsection (d).
       ``(F) The extent to which the activities proposed by the 
     company will expand economic opportunities in the geographic 
     areas in which the company intends to invest.
       ``(G) The strength of the company's proposal to provide 
     operational assistance under this part as the proposal 
     relates to the ability of the applicant to meet applicable 
     cash requirements and properly utilize in-kind contributions, 
     including the use of resources for the services of licensed 
     professionals, when necessary, whether provided by persons on 
     the company's staff or by persons outside of the company.
       ``(H) Any other factors deemed appropriate by the 
     Administrator.
       ``(3) Nationwide distribution.--The Administrator shall 
     select companies under paragraph (1) in such a way that 
     promotes investment nationwide.
       ``(d) Requirements To Be Met for Final Approval.--The 
     Administrator shall grant each conditionally approved company 
     a period of time, not to exceed 2 years, to satisfy the 
     following requirements:
       ``(1) Capital requirement.--Each conditionally approved 
     company shall raise not less than $5,000,000 of private 
     capital or binding capital commitments from one or more 
     investors (other than agencies or departments of the Federal 
     Government) who meet criteria established by the 
     Administrator.
       ``(2) Nonadministration resources for operational 
     assistance.--
       ``(A) In general.--In order to provide operational 
     assistance to smaller enterprises expected to be financed by 
     the company, each conditionally approved company--
       ``(i) shall have binding commitments (for contribution in 
     cash or in kind)--

       ``(I) from any sources other than the Small Business 
     Administration that meet criteria established by the 
     Administrator;
       ``(II) payable or available over a multiyear period 
     acceptable to the Administrator (not to exceed 10 years); and
       ``(III) in an amount not less than 30 percent of the total 
     amount of capital and commitments raised under paragraph (1);

       ``(ii) shall have purchased an annuity--

       ``(I) from an insurance company acceptable to the 
     Administrator;
       ``(II) using funds (other than the funds raised under 
     paragraph (1)) from any source other than the Administrator; 
     and

       ``(III) that yields cash payments over a multiyear period 
     acceptable to the Administrator (not to exceed 10 years) in 
     an amount not less than 30 percent of the total amount of 
     capital and commitments raised under paragraph (1); or

       ``(iii) shall have binding commitments (for contributions 
     in cash or in kind) of the type described in clause (i) and 
     shall have purchased an annuity of the type described in 
     clause (ii), which in the aggregate make available, over a 
     multiyear period acceptable to the Administrator (not to 
     exceed 10 years), an amount not less than 30 percent of the 
     total amount of capital and commitments raised under 
     paragraph (1).
       ``(B) Exception.--The Administrator may, in the discretion 
     of the Administrator and based upon a showing of special 
     circumstances and good cause, consider an applicant to have 
     satisfied the requirements of subparagraph (A) if the 
     applicant has--
       ``(i) a viable plan that reasonably projects the capacity 
     of the applicant to raise the amount (in cash or in-kind) 
     required under subparagraph (A); and
       ``(ii) binding commitments in an amount equal to not less 
     than 20 percent of the total amount required under paragraph 
     (A).
       ``(C) Limitation.--In order to comply with the requirements 
     of subparagraphs (A) and (B), the total amount of a company's 
     in-kind contributions may not exceed 50 percent of the 
     company's total contributions.
       ``(e) Final Approval; Designation.--The Administrator 
     shall, with respect to each applicant conditionally approved 
     to operate as a New Markets Venture Capital company under 
     subsection (c), either--
       ``(1) grant final approval to the applicant to operate as a 
     New Markets Venture Capital company under this part and 
     designate the applicant as such a company, if the applicant--
       ``(A) satisfies the requirements of subsection (d) on or 
     before the expiration of the time period described in that 
     subsection; and
       ``(B) enters into a participation agreement with the 
     Administrator; or
       ``(2) if the applicant fails to satisfy the requirements of 
     subsection (d) on or before the expiration of the time period 
     described in that subsection, revoke the conditional approval 
     granted under that subsection.

     ``SEC. 355. DEBENTURES.

       ``(a) In General.--The Administrator may guarantee the 
     timely payment of principal and interest, as scheduled, on 
     debentures issued by any New Markets Venture Capital company.
       ``(b) Terms and Conditions.--The Administrator may make 
     guarantees under this section on such terms and conditions as 
     it deems appropriate, except that the term of any debenture 
     guaranteed under this section shall not exceed 15 years.
       ``(c) Full Faith and Credit of the United States.--The full 
     faith and credit of the United States is pledged to pay all 
     amounts that may be required to be paid under any guarantee 
     under this part.
       ``(d) Maximum Guarantee.--
       ``(1) In general.--Under this section, the Administrator 
     may guarantee the debentures issued by a New Markets Venture 
     Capital company only to the extent that the total face amount 
     of outstanding guaranteed debentures of such company does not 
     exceed 150 percent of the private capital of the company, as 
     determined by the Administrator.
       ``(2) Treatment of certain federal funds.--For the purposes 
     of paragraph (1), private capital shall include capital that 
     is considered to be Federal funds, if such capital is 
     contributed by an investor other than an agency or department 
     of the Federal Government.

     ``SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES.

       ``(a) Issuance.--The Administrator may issue trust 
     certificates representing ownership of all or a fractional 
     part of debentures issued by a New Markets Venture Capital 
     company and guaranteed by the Administrator under this part, 
     if such certificates are based on and backed by a trust or 
     pool approved by the Administrator and composed solely of 
     guaranteed debentures.
       ``(b) Guarantee.--
       ``(1) In general.--The Administrator may, under such terms 
     and conditions as it deems appropriate, guarantee the timely 
     payment of the principal of and interest on trust 
     certificates issued by the Administrator or its agents for 
     purposes of this section.
       ``(2) Limitation.--Each guarantee under this subsection 
     shall be limited to the extent of principal and interest on 
     the guaranteed debentures that compose the trust or pool.
       ``(3) Prepayment or default.--In the event that a debenture 
     in a trust or pool is prepaid, or in the event of default of 
     such a debenture, the guarantee of timely payment of 
     principal and interest on the trust certificates shall be 
     reduced in proportion to the amount of principal and interest 
     such prepaid debenture represents in the trust or pool. 
     Interest on prepaid or defaulted debentures shall accrue and 
     be guaranteed by the Administrator only through the date of 
     payment of the guarantee. At any time during its term, a 
     trust certificate may be called for redemption due to 
     prepayment or default of all debentures.
       ``(c) Full Faith and Credit of the United States.--The full 
     faith and credit of the United States is pledged to pay all 
     amounts that may be required to be paid under any guarantee 
     of a trust certificate issued by the Administrator or its 
     agents under this section.
       ``(d) Fees.--The Administrator shall not collect a fee for 
     any guarantee of a trust certificate under this section, but 
     any agent of the Administrator may collect a fee approved by 
     the Administrator for the functions described in subsection 
     (f)(2).
       ``(e) Subrogation and Ownership Rights.--
       ``(1) Subrogation.--In the event the Administrator pays a 
     claim under a guarantee issued under this section, it shall 
     be subrogated fully to the rights satisfied by such payment.
       ``(2) Ownership rights.--No Federal, State, or local law 
     shall preclude or limit the exercise by the Administrator of 
     its ownership rights in the debentures residing in a trust or 
     pool against which trust certificates are issued under this 
     section.
       ``(f) Management and Administration.--
       ``(1) Registration.--The Administrator may provide for a 
     central registration of all trust certificates issued under 
     this section.
       ``(2) Contracting of functions.--
       ``(A) In general.--The Administrator may contract with an 
     agent or agents to carry out on behalf of the Administrator 
     the pooling and the central registration functions provided 
     for in this section including, notwithstanding any other 
     provision of law--
       ``(i) maintenance, on behalf of and under the direction of 
     the Administrator, of such commercial bank accounts or 
     investments in obligations of the United States as may be 
     necessary to facilitate the creation of trusts or pools 
     backed by debentures guaranteed under this part; and
       ``(ii) the issuance of trust certificates to facilitate the 
     creation of such trusts or pools.
       ``(B) Fidelity bond or insurance requirement.--Any agent 
     performing functions on behalf of the Administrator under 
     this paragraph shall provide a fidelity bond or insurance in 
     such amounts as the Administrator determines to be necessary 
     to fully protect the interests of the United States.
       ``(3) Regulation of brokers and dealers.--The Administrator 
     may regulate brokers and dealers in trust certificates issued 
     under this section.
       ``(4) Electronic registration.--Nothing in this subsection 
     may be construed to prohibit the use of a book-entry or other 
     electronic form of registration for trust certificates issued 
     under this section.

     ``SEC. 357. FEES.

       ``Except as provided in section 356(d), the Administrator 
     may charge such fees as it deems appropriate with respect to 
     any guarantee or grant issued under this part.

[[Page H11077]]

     ``SEC. 358. OPERATIONAL ASSISTANCE GRANTS.

       ``(a) In General.--
       ``(1) Authority.--In accordance with this section, the 
     Administrator may make grants to New Markets Venture Capital 
     companies and to other entities, as authorized by this part, 
     to provide operational assistance to smaller enterprises 
     financed, or expected to be financed, by such companies or 
     other entities.
       ``(2) Terms.--Grants made under this subsection shall be 
     made over a multiyear period not to exceed 10 years, under 
     such other terms as the Administrator may require.
       ``(3) Grants to specialized small business investment 
     companies.--
       ``(A) Authority.--In accordance with this section, the 
     Administrator may make grants to specialized small business 
     investment companies to provide operational assistance to 
     smaller enterprises financed, or expected to be financed, by 
     such companies after the effective date of the New Markets 
     Venture Capital Program Act of 2000.
       ``(B) Use of funds.--The proceeds of a grant made under 
     this paragraph may be used by the company receiving such 
     grant only to provide operational assistance in connection 
     with an equity investment (made with capital raised after the 
     effective date of the New Markets Venture Capital Program Act 
     of 2000) in a business located in a low-income geographic 
     area.
       ``(C) Submission of plans.--A specialized small business 
     investment company shall be eligible for a grant under this 
     section only if the company submits to the Administrator, in 
     such form and manner as the Administrator may require, a plan 
     for use of the grant.
       ``(4) Grant amount.--
       ``(A) New markets venture capital companies.--The amount of 
     a grant made under this subsection to a New Markets Venture 
     Capital company shall be equal to the resources (in cash or 
     in kind) raised by the company under with section 354(d)(2).
       ``(B) Other entities.--The amount of a grant made under 
     this subsection to any entity other than a New Markets 
     Venture capital company shall be equal to the resources (in 
     cash or in kind) raised by the entity in accordance with the 
     requirements applicable to New Markets Venture Capital 
     companies set forth in section 354(d)(2).
       ``(5) Pro rata reductions.--If the amount made available to 
     carry out this section is insufficient for the Administrator 
     to provide grants in the amounts provided for in paragraph 
     (4), the Administrator shall make pro rata reductions in the 
     amounts otherwise payable to each company and entity under 
     such paragraph.
       ``(b) Supplemental Grants.--
       ``(1) In general.--The Administrator may make supplemental 
     grants to New Markets Venture Capital companies and to other 
     entities, as authorized by this part, under such terms as the 
     Administrator may require, to provide additional operational 
     assistance to smaller enterprises financed, or expected to be 
     financed, by the companies.
       ``(2) Matching requirement.--The Administrator may require, 
     as a condition of any supplemental grant made under this 
     subsection, that the company or entity receiving the grant 
     provide from resources (in cash or in kind), other than those 
     provided by the Administrator, a matching contribution equal 
     to the amount of the supplemental grant.
       ``(c) Limitation.--None of the assistance made available 
     under this section may be used for any overhead or general 
     and administrative expense of a New Markets Venture Capital 
     company or a specialized small business investment company.

     ``SEC. 359. BANK PARTICIPATION.

       ``(a) In General.--Except as provided in subsection (b), 
     any national bank, any member bank of the Federal Reserve 
     System, and (to the extent permitted under applicable State 
     law) any insured bank that is not a member of such system, 
     may invest in any New Markets Venture Capital company, or in 
     any entity established to invest solely in New Markets 
     Venture Capital companies.
       ``(b) Limitation.--No bank described in subsection (a) may 
     make investments described in such subsection that are 
     greater than 5 percent of the capital and surplus of the 
     bank.

     ``SEC. 360. FEDERAL FINANCING BANK.

       ``Section 318 shall not apply to any debenture issued by a 
     New Markets Venture Capital company under this part.

     ``SEC. 361. REPORTING REQUIREMENTS.

       ``Each New Markets Venture Capital company that 
     participates in the program established under this part shall 
     provide to the Administrator such information as the 
     Administrator may require, including--
       ``(1) information related to the measurement criteria that 
     the company proposed in its program application; and
       ``(2) in each case in which the company under this part 
     makes an investment in, or a loan or grant to, a business 
     that is not located in a low-income geographic area, a report 
     on the number and percentage of employees of the business who 
     reside in such areas.

     ``SEC. 362. EXAMINATIONS.

       ``(a) In General.--Each New Markets Venture Capital company 
     that participates in the program established under this part 
     shall be subject to examinations made at the direction of the 
     Investment Division of the Small Business Administration in 
     accordance with this section.
       ``(b) Assistance of Private Sector Entities.--Examinations 
     under this section may be conducted with the assistance of a 
     private sector entity that has both the qualifications and 
     the expertise necessary to conduct such examinations.
       ``(c) Costs.--
       ``(1) Assessment.--
       ``(A) In general.--The Administrator may assess the cost of 
     examinations under this section, including compensation of 
     the examiners, against the company examined.
       ``(B) Payment.--Any company against which the Administrator 
     assesses costs under this paragraph shall pay such costs.
       ``(2) Deposit of funds.--Funds collected under this section 
     shall be deposited in the account for salaries and expenses 
     of the Small Business Administration.

     ``SEC. 363. INJUNCTIONS AND OTHER ORDERS.

       ``(a) In General.--Whenever, in the judgment of the 
     Administrator, a New Markets Venture Capital company or any 
     other person has engaged or is about to engage in any acts or 
     practices which constitute or will constitute a violation of 
     any provision of this Act, or of any rule or regulation under 
     this Act, or of any order issued under this Act, the 
     Administrator may make application to the proper district 
     court of the United States or a United States court of any 
     place subject to the jurisdiction of the United States for an 
     order enjoining such acts or practices, or for an order 
     enforcing compliance with such provision, rule, regulation, 
     or order, and such courts shall have jurisdiction of such 
     actions and, upon a showing by the Administrator that such 
     New Markets Venture Capital company or other person has 
     engaged or is about to engage in any such acts or practices, 
     a permanent or temporary injunction, restraining order, or 
     other order, shall be granted without bond.
       ``(b) Jurisdiction.--In any proceeding under subsection 
     (a), the court as a court of equity may, to such extent as it 
     deems necessary, take exclusive jurisdiction of the New 
     Market Venture Capital company and the assets thereof, 
     wherever located, and the court shall have jurisdiction in 
     any such proceeding to appoint a trustee or receiver to hold 
     or administer under the direction of the court the assets so 
     possessed.
       ``(c) Administrator as Trustee or Receiver.--
       ``(1) Authority.--The Administrator may act as trustee or 
     receiver of a New Markets Venture Capital company.
       ``(2) Appointment.--Upon request of the Administrator, the 
     court may appoint the Administrator to act as a trustee or 
     receiver of a New Markets Venture Capital company unless the 
     court deems such appointment inequitable or otherwise 
     inappropriate by reason of the special circumstances 
     involved.

     ``SEC. 364. ADDITIONAL PENALTIES FOR NONCOMPLIANCE.

       ``(a) In General.--With respect to any New Markets Venture 
     Capital company that violates or fails to comply with any of 
     the provisions of this Act, of any regulation issued under 
     this Act, or of any participation agreement entered into 
     under this Act, the Administrator may in accordance with this 
     section--
       ``(1) void the participation agreement between the 
     Administrator and the company; and
       ``(2) cause the company to forfeit all of the rights and 
     privileges derived by the company from this Act.
       ``(b) Adjudication of Noncompliance.--
       ``(1) In general.--Before the Administrator may cause a New 
     Markets Venture Capital company to forfeit rights or 
     privileges under subsection (a), a court of the United States 
     of competent jurisdiction must find that the company 
     committed a violation, or failed to comply, in a cause of 
     action brought for that purpose in the district, territory, 
     or other place subject to the jurisdiction of the United 
     States, in which the principal office of the company is 
     located.
       ``(2) Parties authorized to file causes of action.--Each 
     cause of action brought by the United States under this 
     subsection shall be brought by the Administrator or by the 
     Attorney General.

     ``SEC. 365. UNLAWFUL ACTS AND OMISSIONS; BREACH OF FIDUCIARY 
                   DUTY.

       ``(a) Parties Deemed To Commit a Violation.--Whenever any 
     New Markets Venture Capital company violates any provision of 
     this Act, of a regulation issued under this Act, or of a 
     participation agreement entered into under this Act, by 
     reason of its failure to comply with its terms or by reason 
     of its engaging in any act or practice that constitutes or 
     will constitute a violation thereof, such violation shall 
     also be deemed to be a violation and an unlawful act 
     committed by any person who, directly or indirectly, 
     authorizes, orders, participates in, causes, brings about, 
     counsels, aids, or abets in the commission of any acts, 
     practices, or transactions that constitute or will 
     constitute, in whole or in part, such violation.
       ``(b) Fiduciary Duties.--It shall be unlawful for any 
     officer, director, employee, agent, or other participant in 
     the management or conduct of the affairs of a New Markets 
     Venture Capital company to engage in any act or practice, or 
     to omit any act or practice, in breach of the person's 
     fiduciary duty as such officer, director, employee, agent, or 
     participant if, as a result thereof, the company suffers or 
     is in imminent danger of suffering financial loss or other 
     damage.
       ``(c) Unlawful Acts.--Except with the written consent of 
     the Administrator, it shall be unlawful--
       ``(1) for any person to take office as an officer, 
     director, or employee of any New Markets Venture Capital 
     company, or to become an agent or participant in the conduct 
     of the affairs or management of such a company, if the 
     person--
       ``(A) has been convicted of a felony, or any other criminal 
     offense involving dishonesty or breach of trust, or
       ``(B) has been found civilly liable in damages, or has been 
     permanently or temporarily enjoined by an order, judgment, or 
     decree of a court of competent jurisdiction, by reason of any 
     act or practice involving fraud, or breach of trust; and

[[Page H11078]]

       ``(2) for any person continue to serve in any of the 
     capacities described in paragraph (1), if--
       ``(A) the person is convicted of a felony, or any other 
     criminal offense involving dishonesty or breach of trust, or
       ``(B) the person is found civilly liable in damages, or is 
     permanently or temporarily enjoined by an order, judgment, or 
     decree of a court of competent jurisdiction, by reason of any 
     act or practice involving fraud or breach of trust.

     ``SEC. 366. REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS.

       ``Using the procedures for removing or suspending a 
     director or an officer of a licensee set forth in section 313 
     (to the extent such procedures are not inconsistent with the 
     requirements of this part), the Administrator may remove or 
     suspend any director or officer of any New Markets Venture 
     Capital company.

     ``SEC. 367. REGULATIONS.

       ``The Administrator may issue such regulations as it deems 
     necessary to carry out the provisions of this part in 
     accordance with its purposes.

     ``SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS.

       ``(a) In General.--There are authorized to be appropriated 
     for fiscal years 2001 through 2006, to remain available until 
     expended, the following sums:
       ``(1) Such subsidy budget authority as may be necessary to 
     guarantee $150,000,000 of debentures under this part.
       ``(2) $30,000,000 to make grants under this part.
       ``(b) Funds Collected for Examinations.--Funds deposited 
     under section 362(c)(2) are authorized to be appropriated 
     only for the costs of examinations under section 362 and for 
     the costs of other oversight activities with respect to the 
     program established under this part.''.
       (c) Conforming Amendment.--Section 20(e)(1)(C) of the Small 
     Business Act (15 U.S.C 631 note) is amended by inserting 
     ``part A of'' before ``title III''.
       (d) Calculation of Maximum Amount of SBIC Leverage.--
       (1) Maximum leverage.--Section 303(b)(2) of the Small 
     Business Investment Act of 1958 (15 U.S.C. 683(b)(2)) is 
     amended to read as follows:
       ``(2) Maximum leverage.--
       ``(A) In general.--After March 31, 1993, the maximum amount 
     of outstanding leverage made available to a company licensed 
     under section 301(c) of this Act shall be determined by the 
     amount of such company's private capital--
       ``(i) if the company has private capital of not more than 
     $15,000,000, the total amount of leverage shall not exceed 
     300 percent of private capital;
       ``(ii) if the company has private capital of more than 
     $15,000,000 but not more than $30,000,000, the total amount 
     of leverage shall not exceed $45,000,000 plus 200 percent of 
     the amount of private capital over $15,000,000; and
       ``(iii) if the company has private capital of more than 
     $30,000,000, the total amount of leverage shall not exceed 
     $75,000,000 plus 100 percent of the amount of private capital 
     over $30,000,000 but not to exceed an additional $15,000,000.
       ``(B) Adjustments.--
       ``(i) In general.--The dollar amounts in clauses (i), (ii), 
     and (iii) of subparagraph (A) shall be adjusted annually to 
     reflect increases in the Consumer Price Index established by 
     the Bureau of Labor Statistics of the Department of Labor.
       (ii) Initial adjustments.--The initial adjustments made 
     under this subparagraph after the date of the enactment of 
     the Small Business Reauthorization Act of 1997 shall reflect 
     only increases from March 31, 1993.
       ``(C) Investments in low-income geographic areas.--In 
     calculating the outstanding leverage of a company for the 
     purposes of subparagraph (A), the Administrator shall not 
     include the amount of the cost basis of any equity investment 
     made by the company in a smaller enterprise located in a low-
     income geographic area (as defined in section 351), to the 
     extent that the total of such amounts does not exceed 50 
     percent of the company's private capital.''.
       (2) Maximum aggregate leverage.--Section 303(b)(4) of the 
     Small Business Investment Act of 1958 (15 U.S.C. 683(b)(4)) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(D) Investments in low-income geographic areas.--In 
     calculating the aggregate outstanding leverage of a company 
     for the purposes of subparagraph (A), the Administrator shall 
     not include the amount of the cost basis of any equity 
     investment made by the company in a smaller enterprise 
     located in a low-income geographic area (as defined in 
     section 351), to the extent that the total of such amounts 
     does not exceed 50 percent of the company's private 
     capital.''.
       (e) Bankruptcy Exemption for New Markets Venture Capital 
     Companies.--Section 109(b)(2) of title 11, United States 
     Code, is amended by inserting ``a New Markets Venture Capital 
     company as defined in section 351 of the Small Business 
     Investment Act of 1958,'' after ``homestead association,''.
       (f) Federal Savings Associations.--Section 5(c)(4) of the 
     Home Owners' Loan Act (12 U.S.C. 1464(c)(4)) is amended by 
     adding at the end the following:
       ``(F) New markets venture capital companies.--A Federal 
     savings association may invest in stock, obligations, or 
     other securities of any New Markets Venture Capital company 
     as defined in section 351 of the Small Business investment 
     Act of 1958, except that a Federal savings association may 
     not make any investment under this subparagraph if its 
     aggregate outstanding investment under this subparagraph 
     would exceed 5 percent of the capital and surplus of such 
     savings association.''.

     SEC. 902. BUSINESSLINC GRANTS AND COOPERATIVE AGREEMENTS.

       Section 8 of the Small Business Act (15 U.S.C. 637) is 
     amended by adding at the end the following:
       ``(n) BusinessLINC Grants and Cooperative Agreements.--
       ``(1) In general.--In accordance with this subsection, the 
     Administrator may make grants to and enter into cooperative 
     agreements with any coalition of private entities, public 
     entities, or any combination of private and public entities--
       ``(A) to expand business-to-business relationships between 
     large and small businesses; and
       ``(B) to provide businesses, directly or indirectly, with 
     online information and a database of companies that are 
     interested in mentor-protege programs or community-based, 
     statewide, or local business development programs.
       ``(2) Matching requirement.--Subject to subparagraph (B), 
     the Administrator may make a grant to a coalition under 
     paragraph (1) only if the coalition provides for activities 
     described in paragraph (1)(A) or (1)(B) an amount, either in 
     kind or in cash, equal to the grant amount.
       ``(3) Authorization of appropriations.--There is authorized 
     to be appropriated to carry out this subsection $6,600,000, 
     to remain available until expended, for each of fiscal years 
     2001 through 2006.''.
       Following is explanatory language for H.R. 5545, as 
     introduced on October 25, 2000. References in the following 
     to the ``conference agreement'' refer to the text of that 
     bill.

       JOINT STATEMENT OF MANAGERS OF H.R. 2614--SMALL BUSINESS 
                            REAUTHORIZATION

          Title I--Small Business Innovation Research Program

       The Small Business Innovation Research Program 
     Reauthorization Act of 2000 (H.R. 2392) was introduced on 
     June 30, 1999, and referred to the House Committees on Small 
     Business and Science. Both Committees held hearings and the 
     House Committee on Small Business reported H.R. 2392 on 
     September 23, 1999 (H. Rept. 106-329). In the interest of 
     moving the bill to the floor of the House of Representatives 
     promptly, the Committee on Science agreed not to exercise its 
     right to report the legislation, provided that the House 
     Committee on Small Business agreed to add the selected 
     portions of the Science Committee version of the legislation, 
     as Sections 8 through 11 of the House floor text of H.R. 
     2392. H.R. 2392 passed the House without further amendment on 
     September 27. The Science Committee provisions were explained 
     in floor statements by Congressmen Sensenbrenner, Morella, 
     and Mark Udall.
       On March 21, 2000, the Senate Committee marked-up H.R. 2392 
     and on May 10, 2000, reported the bill (S. Rept. 106-289). 
     The Senate Committee struck several of the sections 
     originating from the House Committee on Science and added 
     sections not in the House-passed legislation, including a 
     requirement that Federal agencies with Small Business 
     Innovation Research (SBIR) programs report their methodology 
     for calculating their SBIR budgets to the Small Business 
     Administration (SBA) and a program to assist states in the 
     development of small high-technology businesses. Negotiations 
     then began among the leadership of the Senate and House 
     Committees on Small Business and the House Committee on 
     Science (hereinafter referred to as the three committees). 
     The resultant compromise text contains all major House and 
     Senate provisions, some of which have been amended to reflect 
     a compromise position. A section-by-section explanation of 
     the revised text follows. For purposes of this statement, the 
     bill passed by the House of Representatives is referred to as 
     the ``House version'' and the bill reported by the Senate 
     Committee on Small Business is referred to as the ``Senate 
     version.''
     Section 101. Short title; table of contents
       The compromise text uses the Senate short title: ``Small 
     Business Innovation Research Program Reauthorization Act of 
     2000.'' The table of contents lists the sections in the 
     compromise text.
     Section 102. Findings
       The House and Senate versions of the findings are very 
     similar. The compromise text uses the House version of the 
     findings.
     Section 103. Extension of the SBIR program
       The House version extends the SBIR program for seven years 
     through September 30, 2007. The Senate version extends the 
     program for ten years through September 30, 2010. The 
     compromise text extends the program for eight years through 
     September 30, 2008.
     Section 104. Annual report
       The House version provides for the annual report on the 
     SBIR program prepared by the SBA to be sent to the Committee 
     on Science, as well as to the House and Senate Committees on 
     Small Business that currently receive it. The Senate version 
     did not include this section. The compromise text adopts the 
     House language.
     Section 105. Third phase assistance
       The compromise text of this technical amendment is 
     identical to both the House and Senate versions.
     Section 106. Report on programs for annual performance plan
       This section requires each agency that participates in the 
     SBIR program to submit to Congress a performance plan 
     consistent with the Government Performance and Results Act. 
     The House and Senate versions have the same intent. The 
     compromise text uses the House version.
     Section 107. Output and outcome data
       Both the House and Senate versions contain sections 
     enabling the collection and

[[Page H11079]]

     maintenance of information from awardees as is necessary to 
     assess the SBIR program. Both the Senate and House versions 
     require the SBA to maintain a public database at SBA 
     containing information on awardees from all SBIR agencies. 
     The Senate version adds paragraphs to the public database 
     section dealing with database identification of businesses or 
     subsidiaries established for the commercial application of 
     SBIR products or services and the inclusion of information 
     regarding mentors and mentoring networks. The House version 
     further requires the SBA to establish and maintain a 
     government database, which is exempt from the Freedom of 
     Information Act and is to be used solely for program 
     evaluation. Outside individuals must sign a non-disclosure 
     agreement before gaining access to the database. The 
     compromise text contains each of these provisions, with 
     certain modifications and clarifications, which are addressed 
     below.
       With respect to the public database, the compromise text 
     makes clear that proprietary information, so identified by a 
     small business concern, will not be included in the public 
     database. With respect to the government database, the 
     compromise text clarifies that the inclusion of information 
     in the government database is not to be considered 
     publication for purposes of patent law. The compromise text 
     further permits the SBA to include in the government database 
     any information received in connection with an SBIR award the 
     SBA Administrator, in conjunction with the SBIR agency 
     program managers, consider to be relevant and appropriate or 
     that the Federal agency considers to be useful to SBIR 
     program evaluation.
       With respect to small business reporting for the government 
     database, the compromise text directs that when a small 
     business applies for a second phase award it is required to 
     update information in the government database. If an 
     applicant for a second phase award receives the award, it 
     shall update information in the database concerning the award 
     at the termination of the award period and will be requested 
     to voluntarily update the information annually for an 
     additional period of five years. This reporting procedure is 
     similar to current Department of Defense requirements for the 
     reporting of such information. When sales or additional 
     investment information is related to more than one second 
     phase award is involved, the compromise text permits a small 
     business to apportion the information among the awards in any 
     way it chooses, provided the apportionment is noted on all 
     awards so apportioned.
       The three committees understand that receiving complete 
     commercialization data on the SBIR program is difficult, 
     regardless of any reasonable time frame that could be 
     established for the reporting of such data. Commercialization 
     may occur many years following the receipt of a research 
     grant and research from an award, while not directly 
     resulting in a marketable product, may set the groundwork for 
     additional research that leads to such a product. 
     Nevertheless, the three committees believe that the 
     government database will provide useful information for 
     program evaluation.
     Section 108. National Research Council Reports
       The House version requires the four largest SBIR program 
     agencies to enter into an agreement with the National 
     Research Council (NRC) to conduct a comprehensive study of 
     how the SBIR program has stimulated technological innovation 
     and used small businesses to meet Federal research and 
     development needs and to make recommendations on potential 
     improvements to the program. The Senate version contains no 
     similar provision. The study was designed to answer questions 
     remaining from the House Committees' reviews of these 
     programs and to make sure that a current evaluation of the 
     program is available when the program next comes up for 
     reauthorization.
       The compromise text makes several changes to the House 
     text. The compromise text adds the National Science 
     Foundation to the agencies entering the agreement with the 
     NRC and requires the agencies to consult with the SBA in 
     entering such agreement. It also expands on the House 
     version, which requires a review of the quality of SBIR 
     research, to require a comparison of the value of projects 
     conducted under SBIR with those funded by other Federal 
     research and development expenditures. The compromise text 
     further broadens the House version's review of the economic 
     rate of return of the SBIR program to require an evaluation 
     of the economic benefits of the SBIR program, including 
     economic rate of return, and a comparison of the economic 
     benefits of the SBIR program with that of other Federal 
     research and development expenditures. The compromise text 
     allows the NRC to choose an appropriate time-frame for such 
     analysis that results in a fair comparison.
       The three committees believe that a comprehensive report on 
     the SBIR program and its relation to other Federal research 
     expenditures will be useful in program oversight and will 
     provide Congress with an understanding of the effects of 
     extramural Federal research and development funding provided 
     to large and small businesses and universities. The three 
     committees understand, however, that measuring the direct 
     benefits to the nation's economy from the SBIR program and 
     other Federal research expenditures may be difficult to 
     calculate and may not provide a complete portrayal of the 
     benefits achieved by the SBIR program. Accordingly, the 
     legislation requires the NRC also to review the non-economic 
     benefits of the SBIR program, which may include, among other 
     matters, the increase in scientific knowledge that has 
     resulted from the program. The paragraph in the compromise 
     text calling for recommendations remains the same as the 
     House version, except that the bill now asks the NRC to 
     make recommendations, should there be any.
       While the study is to be carried out within National 
     Research Council study guidelines and procedures, the 
     compromise text requires the NRC to take the steps necessary 
     to ensure that individuals from the small business community 
     with expertise in the SBIR program are well-represented in 
     the panel established for performing the study and among the 
     peer reviewers of the study. The NRC is to consult with and 
     consider the views of the SBA's Office of Technology and the 
     SBA's Office of Advocacy and to conduct the study in an open 
     manner that makes sure that the views and experiences of 
     small businesses involved in the program are carefully 
     considered in the design and execution of the study. 
     Extension of the SBIR program for eight years rather than the 
     five being contemplated when the House study provision was 
     initially written has necessitated some adjustments in the 
     study. The report is now required three years rather than 
     four years after the date of enactment of the Act and the NRC 
     is to update the report within six years of enactment. The 
     update is intended to bring current, any information from the 
     study relevant to the reauthorization of the SBIR program. It 
     is not intended to be a second full-fledged study. In 
     addition, semiannual progress reports by NRC to the three 
     committees are required.
     Section 109. Federal agency expenditures for the SBIR program
       The Senate version requires each Federal agency with an 
     SBIR program to provide the SBA with a report describing its 
     methodology for calculating its extramural budget for 
     purposes of SBIR program set-aside and requires the 
     Administrator of the SBA to include an analysis of the 
     methodology from each agency in its annual report to the 
     Congress. The House version has no similar provision. The 
     compromise text follows the Senate text except that it 
     specifies that each agency, rather than the agency's 
     comptroller, shall submit the agency's report to the 
     Administrator. The three committees intend that each agency's 
     methodology include an itemization of each research program 
     that is excluded from the calculation of its extramural 
     budget for SBIR purposes as well as a brief explanation of 
     why the agency feels each excluded program meets a particular 
     exemption.
     Section 110. Policy directive modifications
       The House version includes policy directive modifications 
     in Section 9 and the requirement of a second phase commercial 
     plan in Section 10. The Senate version includes policy 
     directive modifications in Section 6. The Senate version and 
     now the compromise text require the Administrator to make 
     modifications to SBA's policy directives 120 days after the 
     date of enactment rather than the 30 days contained in the 
     House version. The compromise text drops the House policy 
     directive dealing with awards exceeding statutory dollar 
     amounts and time limits because this flexibility is already 
     being provided administratively. Addressed below is a 
     description of the policy directive modifications contained 
     in the compromise text that were not included in both the 
     Senate version and the House version.
       Section 10 of the House version requires the SBA to modify 
     its policy directives to require that small businesses 
     provide a commercial plan with each application for a second-
     phase award. The Senate version does not contain a similar 
     provision. The compromise text requires the SBA to modify its 
     policy directives to require that small businesses provide a 
     ``succinct commercialization plan for each second phase award 
     moving towards commercialization.'' The three committees 
     acknowledge that commercialization is a current element of 
     the SBIR program. The statutory definition of SBIR, which is 
     not amended by H.R. 2392, includes ``a second phase, to 
     further develop proposals which meet particular program 
     needs, in which awards shall be made based on the scientific 
     and technical merit and feasibility of the proposals, as 
     evidenced by the first phase, considering among other things 
     the proposal's commercial potential . . .'', and lists 
     evidence of commercial potential as the small business's 
     commercialization record, private sector funding commitments, 
     SBIR Phase III commitments, and the presence of other 
     indicators of the commercial potential. The three committees 
     do not intend that the addition of a commercialization plan 
     either increase or decrease the emphasis an agency places on 
     the commercialization when reviewing second-phase proposals. 
     Rather, the commercialization plan will give SBIR agencies a 
     means of determining the seriousness with which individual 
     applicants approach commercialization.
       The commercialization plan, while concise, should show that 
     the business has thought through both the steps it must take 
     to prepare for the fruits of the SBIR award to enter the 
     commercial marketplace or government procurement and the 
     steps to build business expertise as needed during the SBIR 
     second phase time period. The three committees intend that 
     agencies take into consideration the stage of development of 
     the product or process in deciding whether an appropriate 
     commercialization plan has been submitted. In those instances 
     when at the time

[[Page H11080]]

     of the SBIR Phase II proposal, the grantee cannot identify 
     either a product or process with the potential eventually to 
     enter either the commercial or the government marketplace, no 
     commercialization plan is required.
       The compromise text also adds new provisions that were not 
     contained in either the Senate version or the House version. 
     Current law (Section 9(j)(3)(C) of the Small Business Act) 
     requires that the Administrator put in place procedures to 
     ensure, to the extent practicable, that an agency which 
     intends to pursue research, development or production of a 
     technology developed by a small business concern under an 
     SBIR program enter into follow-on, non-SBIR funding 
     agreements with the small business concern for such research, 
     development, or production.
       The three committees are concerned that agencies sometimes 
     provide these follow-on activities to large companies who are 
     in incumbent positions or through contract bundling without 
     written justification or without the statutorily required 
     documentation of the impracticability of using the small 
     business for the work. So that the SBA and the Congress can 
     track the extent of this problem, the compromise text 
     requires agencies to record and report each such occurrence 
     and to describe in writing why it is impractical to provide 
     the research project to the original SBIR company. 
     Additionally, the compromise text directs the SBA to develop 
     policy directives to implement the new subsection (v), 
     Simplified Reporting Requirements. This subsection requires 
     that the directives regarding collection of data be designed 
     to minimize the burden on small businesses; to permit the 
     updating the database by electronic means; and to use 
     standardized procedures for the collection and reporting of 
     data.
       Section 103(a)(2) of P.L. 102-564, which reauthorized the 
     SBIR program in 1992, added language to the description of a 
     third phase award which made it clear that the third phase is 
     intended to be a logical conclusion of research projects 
     selected through competitive procedures in phases one and 
     two. The Report of the House Committee on Small Business 
     (H.Rpt. 102-554, Pt. I) provides that the purpose of that 
     clarification was to indicate the Committee's intent that an 
     agency which wishes to fund an SBIR project in phase three 
     (with non-SBIR monies) or enter into a follow-on procurement 
     contract with an SBIR company, need not conduct another 
     competition in order to satisfy the Federal Competition in 
     Contracting Act (CICA). Rather, by phase three the project 
     has survived two competitions and thus has already satisfied 
     the requirements of CICA, set forth in section 2302(2)(E) of 
     that Act, as they apply to the SBIR program. As there has 
     been confusion among SBIR agencies regarding the intent of 
     this change, the three committees reemphasize the intent 
     initially set forth in H.Rpt. 102-554, Pt. 1, including the 
     clarification that follow-on phase III procurement contracts 
     with an SBIR company may include procurement of products, 
     services, research, or any combination intended for use by 
     the Federal government.
     Section 111. Federal and State Technology Partnership Program
       This section establishes the FAST program from the Senate 
     version, which is a competitive matching grant program to 
     encourage states to assist in the development of high-
     technology businesses. The House version does not contain a 
     similar provision. The most significant changes from the 
     Senate version in the compromise text are an extension of the 
     maximum duration of awards from three years to five and the 
     lowering of the matching requirement for funds assisting 
     businesses in low income areas to 50 cents per federal 
     dollar, as advocated by Ranking Member Velazquez of the House 
     Small Business Committee. The compromise text combines the 
     definitions found in the Senate version of this section and 
     the mentoring networks section.
     Section 112. Mentoring networks
       The Senate version sets forth criteria for mentoring 
     networks that organizations are encouraged to establish with 
     matching funds from the FAST program and creates a database 
     of small businesses willing to act as mentors. The compromise 
     text, except for relocating the program definitions to 
     Section 111, is the same as the Senate text. The House 
     version did not contain a similar provision.
     Section 113. Simplified reporting requirements
       This section is not in either the House or the Senate 
     versions. It requires the SBA Administrator to work with SBIR 
     program agencies on standardizing SBIR reporting requirements 
     with the ultimate goal of making the SBA's SBIR database more 
     user friendly. This provision requires the SBA to consider 
     the needs of each agency when establishing and maintaining 
     the database. Additionally, it requires the SBA to take 
     measures to reduce the administrative burden on SBIR 
     program participants whenever possible including, for 
     example, permitting updating by electronic means.
     Section 114. Rural Outreach Program extension
       This provision, which was not in either the House or the 
     Senate versions, extends the life and authorization for 
     appropriations for the Rural Outreach Program of the Small 
     Business Administration for four additional years through 
     fiscal year 2005. It is the intent of the three committees 
     that this program be evaluated on the same schedule and in 
     the same manner as the FAST program. Among other things, the 
     evaluation should examine the extent to which the programs 
     complement or duplicate each other. The evaluation should 
     also include recommendations for improvements to the program, 
     if any.

                    Title II--Business Loan Programs


                          Section 7(A) Program

       The Conferees have been concerned that the availability of 
     smaller 7(a) guaranteed business loans has not been keeping 
     pace with the demands of the small business community. In 
     1994, SBA initiated the LowDoc pilot loan program to make 
     loans of $100,000 and less more readily available. In 1995, 
     the Congress established a guarantee level of 80% for LowDoc 
     loans. As requested in the Administration's 2001 Budget, 
     during consideration of H.R. 2615 in the House of 
     Representatives, the 80% guarantee was extended up to loans 
     of $150,000. The Senate and the House both acted to increase 
     the size of the LowDoc loans. In addition, both Houses agreed 
     to increase the guaranteed percentage from 80% to 85% in 
     anticipation that small business lenders will be more willing 
     to focus on the smaller sized loans.
       In 1988, the Congress acted to establish the maximum 7(a) 
     loan guarantee amount at $750,000. In order to keep up with 
     inflation, the Committee bill increases the maximum 
     guaranteed amount to $1 million. Although a strict 
     inflationary increase in the maximum guaranteed amount would 
     be closer to $1.25 million, the Conferees believe it is 
     prudent to limit the increase to $1 million, which will leave 
     sufficient resources in the program for smaller loans.
       The Conference Report also establishes a ceiling on the 
     maximum loan size of $2 million. It has been reported to the 
     Committee that the 7(a) guarantee has been used in 
     conjunction with large loans in excess of $2 million. Under 
     the Federal Credit Reform Act of 1991, appropriated subsidy 
     dollars are used based on the gross amount of the loan. In 
     these cases, the SBA loan guarantee is a relatively small 
     portion of the loan, and the Conferees have questioned 
     whether these loans meet the ``credit elsewhere'' standard 
     for 7(a) loans and whether this is a good use of appropriated 
     subsidy dollars. Therefore, the Committee agrees with the 
     House of Representatives and has approved a ceiling of $2 
     million for the gross amount of a 7(a) loan.
       In an effort to reduce the size of the credit subsidy rate, 
     in 1997 Congress adopted a provision to reduce SBA's 
     liability for accrued interest on 7(a) loans that are in 
     default. Section 501 deletes this provision since the 
     intended savings from this provision have failed to 
     materialize.
       For the past three years, the House and Senate Committees 
     on Small Business have received reports about the increased 
     number of early prepayments of large, long term SBA-
     guaranteed 7(a) loans. Previously, as the result of an 
     increase in prepayments, the credit subsidy rate was adjusted 
     upwards for Fiscal Year 1998. Subsequently, the number of 
     prepayments continued to climb. In some cases, it has been 
     reported that some small businesses were using the 7(a) 
     program for short term bridge financing, when the program is 
     designed to help small businesses obtain long term credit at 
     a reasonable interest rate. The effect of early prepayments 
     is to reduce the availability of long term 7(a) loans to 
     small businesses that cannot obtain credit elsewhere.
       The prepayment penalty approved by the Conferees would 
     assess a fee to the borrower for early prepayment of any 7(a) 
     loan with a term of 15 years or more. A penalty or fee will 
     be assessed against any prepayment in excess of 25% of the 
     outstanding amount of the loan during any of the first three 
     years after disbursement. Five percent will be assessed in 
     the first year, three percent in the second year, and one 
     percent in the third year. If a prepayment in excess of 25% 
     is made, the penalty will be assessed against the entire 
     outstanding balance of the loan.
       In 1995, Congress increased the guarantee fees charged to 
     7(a) borrowers in order to reduce the credit subsidy rate for 
     the 7(a) program. The Senate agrees with provision, suggested 
     by SBA and adopted by the House of Representatives, which 
     simplifies the guarantee fee schedule. For loans totaling 
     $150,000 or less, the guarantee fee would be two percent of 
     the guarantee amount; for loans greater than $150,000 but 
     less than $700,000, the fee would be three percent; and for 
     loans of $700,000 or more, the guarantee fee would be three 
     and \1/2\ percent. In addition, the Conferees approved a new 
     provision designed to be an incentive for lenders to focus 
     more on smaller loans. This provision allows a lender to 
     retain 25% of the guarantee fee for loans of $150,000 or 
     less.
       In 1997, Congress approved a new provision for the 504 
     Certified Development Company program which allows borrowers 
     to lease out 20% of the property being financed so long as 
     the remaining 80% is occupied by the borrower. The Conferees 
     have approved a similar provision for 7(a) borrowers. This 
     new provision permits the property to be financed with a 7(a) 
     loan 20 percent or less of the business space will be rented 
     to tenants with the borrower occupying 60% of the remaining 
     space.


                           Microloan program

       This section makes programmatic and technical changes to 
     the Small Business Administration's microloan program to make 
     it more flexible to meet credit needs, more accessible to 
     micro entrepreneurs across the

[[Page H11081]]

     nation, and more streamlined for lenders to make loans and 
     provide management assistance. The Senate Committee on Small 
     Business worked closely with industry and the SBA to develop 
     these changes.
       Congress created the microloan program as a pilot in 1991 
     (Public Law 102-140) to reach very small businesses that were 
     not being served by traditional lenders or SBA's credit 
     programs. Often minorities, women, and low-income 
     individuals, these microentrepreneurs needed very little 
     money to launch a business, but they could not get loans 
     because they were considered unreliable or risky borrowers by 
     traditional credit markets. Their often weak or non-existent 
     credit histories or limited business experience caused 
     traditional commercial lenders to shy away from making such 
     loans. To fill this credit need, the Microloan program was 
     designed to provide loans to non-profit intermediary lenders, 
     who in turn provide fixed-rate loans of not more than 
     $25,000, and on average, loans less than $10,000, to very 
     small businesses. In addition, lending intermediaries receive 
     an annual grant from the SBA to provide on-going technical 
     assistance to small businesses. The technical assistance is 
     fundamental to this program because it teaches 
     microentrepreneurs how to manage a successful business, and 
     running a successful business is key to loan repayment.
       As industry experts and micro borrowers have testified 
     numerous times regarding the link between financing and 
     technical assistance, it is critical to the success of micro 
     enterprise, in general, and the SBA microloan program, in 
     particular. The low default rates of loans are evidence of 
     the tremendous success of this program. Since the first 
     microloan was made in 1992, the Federal government has had 
     only one default in its loans to the intermediary loan 
     providers. Equally impressive, the lending intermediaries 
     have had losses of only three to five percent from small 
     businesses, and the losses are fully covered by the mandatory 
     loss reserve that each intermediary must maintain. Because of 
     this successful track record, in 1997 the Congress voted to 
     transform the Microloan program from a demonstration program 
     to a permanent part of the array of SBA credit assistance 
     programs.
       There are currently 156 intermediaries and 19 non-lending 
     technical assistance providers in the SBA Microloan Program. 
     To date, the lending intermediaries have made 10,230 loans 
     worth some $105 million. The SBA reports that for every 
     microloan, 1.7 jobs are created. The average loan to a 
     microentrepreneur is about $10,000, with interest rates 
     averaging 11 percent and an average term of 39 months.
       Since the microloan program was started in 1991, it has 
     grown from 35 to 156 intermediaries. The market has also 
     changed. Thus, as the Senate Committee on Small Business 
     reviewed the program for reauthorization, it worked with 
     trade associations representing microlenders, the Small 
     Business Administration, and individual microlenders to craft 
     legislation that would meet market needs and foster the 
     success of the program.
       Chief among those changes, in large part to reflect 
     inflation, is increasing the maximum loan amount and average 
     loan sizes. The maximum loan amount would increase from 
     $25,000 to $35,000; the average loan size for each 
     intermediary's portfolio would increase from $10,000 
     to $15,000. For speciality lenders, those making smaller 
     loans and receiving additional technical assistance to 
     make them, this legislation would raise their average loan 
     size from $7,500 to $10,000.
       There are 156 intermediaries out of the 200 Congressionally 
     authorized. Three states--Alaska, Louisiana and Wyoming--do 
     not have any intermediaries, though they are working to find 
     appropriate participants. While the need for more technical 
     assistance is partially to blame for the inability of the 
     program to grow and add intermediaries, the industry groups, 
     local economic development leaders and the SBA have asked 
     Congress to expand the program. This Conference Report not 
     only increases the appropriation for direct microloans and 
     technical assistance for each of the next three years to 
     allow the program to expand, but it also takes a balanced 
     approach to increasing the number of intermediaries 
     authorized. The House and Senate Conferees agreed to increase 
     the number of intermediaries from 200 to 300.

            Title III--Certified Development Company Program

       Under the Small Business Investment Act of 1958, 504 
     guaranteed loans for the following public policy goals are 
     eligible for loans guarantees up to $1,000,000:
       Business district revitalization;
       Eexpansion of exports;
       Expansion of minority business development;
       Rural development;
       Enhanced economic competition;
       Changes necessitated by Federal budget cutbacks; and
       Business restructuring arising from Federal mandated 
     standards or policies affecting the environment or the safety 
     and health of employees.
       Both the House and Senate bill add loans to women-owned 
     small businesses to the current list of public policy goals 
     specified under the Act.
       In August 1988, Congress approved legislation (P.L. 100-
     418) to increase the 504 loan guarantee ceiling to $750,000 
     from $500,000, except for a limited number of loans meeting 
     the special public policy purposes. In order to adjust this 
     amount to reflect inflation, the loan guarantee ceiling would 
     need to be increased to approximately $1,250,000. Therefore, 
     the Senate agreed with the position taken by the House and 
     approved an increase to $1,000,000. The House and Senate 
     further agreed to increase the maximum guaranteed amount on 
     loans made to meet the public policy purposes to $1,300,000 
     from $1,000,000.


                              program fees

       In 1995, at the urging of the SBA and the National 
     Association of Development Companies (NADCO), the trade 
     organization that represents the 504 lenders and Certified 
     Development Companies (CDCs), both the House and Senate 
     agreed to legislation mandating that the 504 program be 
     supported entirely by fees paid by the private sector. These 
     new fees were imposed beginning in FY 1996. Subsequently, the 
     SBA undertook an extensive review of the performance of the 
     504 program, and the credit subsidy rate, which determines 
     the amount of money that must be maintained in the loss 
     reserve account for this program, was increased from 0.57% to 
     6.85%, an increase of 1200%. Since the 504 program was being 
     funded only by fees paid by the private sector, the fees paid 
     by the borrower in FY 1997 were increased from 0.125% to 
     0.875%, which placed a financial burden on 504 borrowers. The 
     Conferees are pleased to note that since FY 1997 the credit 
     subsidy rate estimate has dropped resulting in a decrease in 
     borrower fees from 0.875% to 0.472% for FY 2001. The bill 
     authorizes SBA to collect these fees to offset the credit 
     subsidy cost through September 30, 2003.


                   premier certified lenders program

       In October 1994, Congress approved the Premier Certified 
     Lenders Program on a pilot basis (P.L. 103-403). In December 
     1997, this pilot program was extended by Congress, and the 
     limitation on the number of CDCs that could participate in 
     the PCLP was removed (P.L. 105-135). The Senate noted the 
     success of the program and has agreed with the House of 
     Representatives to make the PCLP a permanent part of the 504 
     program. In making the PCLP pilot a permanent part of the 504 
     program, the Conferees expect the SBA to continue its efforts 
     to work with the CDC community to take complete advantage of 
     the strengths of the most successful and well-run CDCs.


                              asset sales

       In response to the plans by the SBA to undertake the sale 
     of assets held by the Agency, the both Senate and House 
     approved a provision that requires the SBA to notify CDCs 
     prior to including a 504 loan in an asset sale. The Committee 
     adopted this section in order to insure there is an open 
     dialogue and cooperation between the Agency and the relevant 
     CDCs. For the past four years, the Committee has encouraged 
     the SBA to move forward with its asset sales program; 
     however, we do not believe this step forward should 
     necessarily harm its lending partners.


                        loan liquidation program

       In response to reports about low recoveries after the 
     default of a 504 loan, the Congress approved legislation in 
     1996 to establish the Loan Liquidation Pilot Program (P.L. 
     104-208). The pilot liquidation program allowed up to 20 
     qualified CDCs to liquidate loans that they originated. It 
     was implemented by the SBA in June 1997. The results to date 
     for the pilot program are encouraging, and the Conferees have 
     concluded that it is in the best interest of the 504 program 
     to allow additional CDCs to conduct their own liquidation and 
     foreclosure activities. The Committee is pleased to note that 
     the recovery estimate for FY 2001 has increased for the first 
     time since 1995. The Administration's estimate for FY 2001 is 
     31 percent, and the assumptions used by OMB and the SBA do 
     not include an increase in recoveries that should result from 
     making the Loan Liquidation Program permanent. The Conferees 
     urge the SBA to continue its efforts and to make maximum use 
     of the Loan Liquidation Program so that the recovery level 
     will increase further.
       A number of CDCs have demonstrated the ability through the 
     pilot program and other lending programs in which they 
     participate, to perform such activities, and have indicated a 
     willingness to perform such functions to supplement SBA's 
     activities in this area. Accordingly, the Conference Report 
     makes the pilot liquidation program permanent and requires 
     SBA to permit certain CDCs to foreclose and liquidate 
     defaulted loans that they have originated under the 504 loan 
     program.
       In order to participate in the loan liquidation program, a 
     CDC must have made at least 10 loans per year for the past 
     three fiscal years, and it must have at least one employee 
     with two years of liquidation experience or be a member of 
     the Accredited Lenders Program with at least one employee 
     with two years of liquidation experience. Representatives of 
     either group must complete a training program developed by 
     SBA. Participants in the pilot liquidation program and 
     Premier Certified Lenders automatically qualify for the 
     permanent liquidation program.
       CDCs eligible to participate in liquidation activities are 
     required to perform all liquidation and foreclosure functions 
     pursuant to a liquidation plan approved by SBA. The 
     Conference Report also authorizes CDCs to take other actions, 
     in lieu of full liquidation or foreclosure, to mitigate loan 
     losses pursuant to a workout plan. Prior to a CDC commencing 
     liquidation or foreclosure activities

[[Page H11082]]

     and prior to engaging in other actions to mitigate loan 
     losses, a CDC is required to provide the SBA with a 
     liquidation plan or workout plan, as the case may be, for 
     approval. The SBA has 15 days to approve a liquidation plan 
     or a workout plan. The legislation further permits CDCs to 
     litigate matters relating to their liquidation activities 
     subject to SBA monitoring of such litigation.
       SBA is authorized to suspend or revoke the authority of a 
     CDC to liquidate loans if the CDC either does not meet the 
     eligibility requirements or fails to comply with any 
     statutory or regulatory requirement relating to the 
     foreclosure or liquidation of loans or any other applicable 
     provision of law. CDCs are also prohibited from taking any 
     action that would result in an actual or apparent conflict of 
     interest in connection with the liquidation of their loans.
       The bill requires the SBA to submit annually to Congress a 
     report on the results of the delegation of authority to CDCs 
     to liquidate and foreclose loans and a comparison of such 
     results to SBA's liquidation performance.

   Title IV--Corrections to the Small Business Investment Act of 1958


                              definitions

       The provisions generally make some technical improvements 
     to the operations of the SBIC Program. Under current law, 
     national banks, member banks of the Federal Reserve, and 
     nonmember insured banks as permitted by State law are allowed 
     to invest in SBICs. The Senate and House Committees approved 
     a provision to allow any Federal Savings Association to make 
     similar investments in SBICs.
       The Committees also approved a provision to clarify the 
     what is meant by the term ``long-term'' as found in Section 
     103 of the Small Business Investment Act. It is the 
     Committees' understanding that the SBA has construed ``long 
     term'' to mean a minimum of five years for all SBIC 
     investments other than those made to ``disadvantaged 
     businesses,'' when ``long term'' is construed to mean four 
     years. The Committee believes the Agency's interpretation of 
     ``long-term'' to be overly restrictive. Under the Generally 
     Accepted Accounting Principles (GAAP), the accounting 
     principles that govern business commerce in the United 
     States, the term ``long-term'' is defined as any period of 
     time greater than one year. Therefore, the Conferees have 
     adopted a definition of ``long-term'' to be a period of time 
     of not less than one year.


                              subsidy fees

       The President's FY 2001 budget request for SBA, as amended, 
     included a ``0'' credit subsidy rate for the SBIC Debenture 
     program. The House and Senate Committees have been informed 
     by SBA staff that the income generated by fees paid by the 
     SBICs to SBA will actually exceed the amounts needed to fund 
     the reserve account required under the Federal Credit Reform 
     Act of 1990 (2 U.S.C. 661a). The Conferees believe it is 
     important that the SBICs should not be required to pay more 
     in fees than is necessary to bring the credit subsidy rate to 
     ``0.'' Therefore, the Conferees have adopted a provision, 
     similar to the one it adopted for the 504 Development Company 
     Program in 1996, which directs the SBA to reduce the annual 
     fee paid by the SBIC from 1 percent to the amount necessary 
     to reduce the credit subsidy rate to ``0.'' The new provision 
     applies to the SBIC Debenture and Participating Securities 
     programs.


                             distributions

       The Senate Committee approved a technical change that 
     permits a qualifying SBIC to make a quarterly tax 
     distribution any time during the applicable calendar quarter. 
     The House passed a similar provision in H.R. 3845. Conferees 
     concur with this provision. Under current law, SBICs may make 
     prioritized payment distributions, profit distributions, and 
     other optional distributions on any date with prior SBA 
     approval. Tax distributions, however, may only be made at the 
     end of calendar year quarters. The SBIC community has 
     informed the Senate Committee that the practical impact of 
     this restriction is that SBICs are forced to delay otherwise 
     permitted interim distributions (including tax distributions) 
     to the end of a quarter or split their distributions into two 
     distributions. Postponing an entire distribution to the end 
     of a quarter has negative cash flow and internal rate of 
     return (IRR) implications. Consequently, most SBICs decide to 
     split their distributions, making tax distributions at the 
     end of the calendar quarter, while making all other 
     distributions at any time during the quarter. Splitting 
     distributions requires the preparation, submission, and SBA 
     review of two sets of documents. The result is an inefficient 
     use of time and resources by SBA and the SBICs.

          Title V--Reauthorization of Small Business Programs

     Sec. 502. Reauthorization of Small Business Programs
       Title I of the bill authorizes appropriations for SBA's 
     business loan programs and certain other SBA programs. 
     Included among the loan programs are Section 7(a) Guaranteed 
     Business Loans, 504 Development Company Loans, Microloans, 
     Disaster Loans, and Small Business Investment Company 
     Debentures and Participating Securities.
       Funding for these SBA programs is detailed in the following 
     chart. As indicated, the bill is a three year authorization. 
     The Conferees have carefully considered the Administration's 
     funding request for each program as well as recommendations 
     from small business owners, individual entrepreneurs, the 
     lending community, and members of this Conference.

                                                       PROGRAM LEVELS FOR SBA REAUTHORIZATION BILL
                                                     [In millions of dollars unless otherwise noted]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                SBA 3 year
                 Program                    Current level    FY01 budget       authorization      Reauthorization    Reauthorization    Reauthorization
                                                FYO1           request       request 01/02/03        bill 2001        bill 2002-2003          bill
--------------------------------------------------------------------------------------------------------------------------------------------------------
7(a) (in billions).......................            $9.8           $11.5           $14.5/15/16              $14.5                $15                $16
504 (in billions)........................            $3.5           $3.75           $5/5.25/5.5                 $4               $4.5                 $5
SBIC:
    Debentures...........................            $800            $500    $1,000/1,200/1,400             $1,500             $2,500             $3,000
    Participating Securities.............   $1,350/$2,000   $2,000/2,500/                $2,500             $3,500             $4,000
                                                                    3,000
Microloan:
    Technical Assistance.................           $23.2           $45.0            $59/80/100                $45                $60                $70
    Direct Loans.........................             $29             $60             $75/80/85                $60                $80               $100
    Guaranteed Loans.....................       carryover               0             $40/40/40                $50                $50                $50
Delta....................................               $1,000                           $0/0/0               $500               $500               $500
Surety Bond Guarantee:
    General Program......................          $1,800          $1,700    $2,000/2,000/2,000             $4,000             $5,000             $6,000
    Preferred Program....................  ..............  ..............  ....................       50% of total       50% of total       50% of total
SCORE....................................            $3.5            $5.0            $5.9/8/8.5                 $5                 $6                 $7
SBDC.....................................           $84.5             $85             $95/95/95               $125               $125               $125
HUBZone..................................            $2.0            $5.0                $6/6/6                $10                $10                $10
--------------------------------------------------------------------------------------------------------------------------------------------------------

                      drug-free workplace program

       In 1998, the Congress enacted the Drug-Free Workplace 
     Demonstration Program under the leadership of Senator Paul 
     Coverdell of Georgia. The purpose of the program is to 
     provide financial and technical assistance to small business 
     concerns seeking to establish a drug-free workplace program. 
     The law authorized $10 million in FY 1999 and 2000. Section 
     809 extends the Drug-Free Workplace Program for FY 2001, 2002 
     and 2003 and authorizes $5 million for each in the period. 
     The Conference Report recognizes the important work of 
     Senator Coverdell and names the program in his honor.


                            hubzone program

       This subsection would increase the annual authorization for 
     the HUBZone Program to $10,000,000 for fiscal years 2001, 
     2002, and 2003. It is the Conferees intention that funds 
     appropriated under the authorization in this subsection shall 
     be used for direct HUBZone Program expenses and should not be 
     diverted by the SBA for any other program or account that is 
     not part of the HUBZone Program.


                      very small business program

       This section would extend the Very Small Business Program 
     pilot. The pilot program is targeted at firms seeking to do 
     business with the Federal government with 15 or fewer 
     employees and with less than $1 million in annual receipts. 
     To date, SBA has had insufficient experience and data to 
     evaluate the program, which SBA failed to implement until 
     March 4, 1999, more than four years after Congress enacted 
     the program. The Conferees anticipate that new reporting 
     requirements set forth in the Federal Procurement Data System 
     will provide SBA with sufficient data to evaluate the program 
     over the next three years.


       socially and economically disadvantaged businesses program

       The Federal Acquisition Streamlining Act of 1994 (P.L. 103-
     355; 15 U.S.C. 644 note) establishes procurement procedures 
     to help small business concerns owned and controlled by 
     socially and economically disadvantaged individuals to meet 
     certain Federal procurement goals. The procurement procedures 
     are scheduled to terminate on September 30, 2000. The 
     Conference Report approved an extension of the program for 
     three years, through September 30, 2003.


                             cosponsorship

       This program provides a means of leveraging the scarce 
     resources at SBA, the

[[Page H11083]]

     Agency engages in a variety of cosponsorships with public and 
     private sector organizations. Current statutory language 
     refers only to training as a permitted cosponsored activity 
     with for-profit entities. SBA defines training as being 
     limited to narrower topics of interest to relatively small 
     numbers of business owners or those in certain types of 
     businesses. There are, however, broader business-related 
     topics, such as the effective use of technology, e-commerce, 
     exporting/importing, about which all small businesses should 
     be informed and educated.
       The SBA has recommended that the terms ``information and 
     education'' be added to the types of assistance that can be 
     provided to small businesses. SBA believes this change will 
     give it the flexibility in the types of assistance that can 
     be provided to small businesses. The Conferees agreed with 
     the SBA's recommendation, concluding that while traditional 
     training in these areas may also be offered, the need to 
     reach broader audiences with timely, updated information and 
     education is vital to the success of the largest number of 
     small businesses.

                       Title VI: HUBZone Program

       The HUBZone program aims to direct portions of Federal 
     contracting dollars into areas of the country that in the 
     past have been out of the economic mainstream. HUBZone areas, 
     which include qualified census tracts, poor rural counties, 
     and Indian reservations, often are relatively out-of-the-way 
     places that the stream of commerce passes by, and thus tend 
     to be in low or moderate income areas. These areas can also 
     include certain rural communities and tend, generally, to be 
     low-traffic areas that do not have a reliable customer base 
     to support business development. As a result, business has 
     been reluctant to move into these areas. It simply has not 
     been profitable, without a customer base to keep them 
     operating.
       The HUBZone Act seeks to overcome this problem by making it 
     possible for the Federal government to become a customer for 
     small businesses that locate in HUBZones. While a small 
     business works to establish its regular customer base, a 
     Federal contract can help it stabilize its revenues and 
     remain profitable. This gives small business a chance to get 
     a foothold and provides jobs to these areas. New business and 
     new jobs mean new life and hope for these communities.
       Since the HUBZone Act was adopted in the Small Business 
     Reauthorization Act of 1997, the Small Business 
     Administration has been implementing the program. On March 
     22, 1999, SBA began accepting applications from interested 
     firms. Experience to date has revealed several difficulties 
     with implementation, which the Senate Committee has sought to 
     rectify in this legislation.

               Subtitle A--HUBZones in Native America Act

       One such problem was an unintended consequence of wording 
     in the 1997 legislation that inadvertently excluded Indian 
     Tribal enterprises and Alaska Native Corporations from 
     participation. The definition of ``HUBZone small business 
     concern'' specified that eligible small businesses must be 
     100% owned and controlled by U.S. citizens. This provision 
     sought to insure that HUBZone benefits, financed by the 
     American taxpayer, should be available only for U.S. 
     beneficiaries.
       However, since citizens are ``born or naturalized'' under 
     the Fourteenth Amendment, ownership by citizens implies 
     ownership by individual flesh-and-blood human beings. 
     Corporate owners and Tribal government owners are not ``born 
     or naturalized'' in the usual meanings of those terms. Thus, 
     the Small Business Administration found that it had no 
     authority to certify small businesses owned wholly or partly 
     by Alaska Native Corporations and Tribal governments.
       Since Native American communities were always intended to 
     benefit from HUBZone opportunities, the Committee has 
     included language to make such firms eligible. On many 
     reservations, particularly the isolated ones, the only 
     investment resources available are the Tribal governments. 
     Excluding those governments from investing in their own 
     reservations means, in practical terms, excluding those 
     reservations from the HUBZone program entirely. Similarly, 
     Alaska Native Corporations have corporate resources that are 
     necessary to make real investments in rural Alaska and to 
     provide jobs to Alaska Natives who currently have no hope of 
     getting them.
       The Senate Committee was guided by three broad principles 
     in crafting this legislation. First, no firm should be made 
     eligible solely by virtue of who it is. For example, Alaska 
     Native Corporations will not be eligible solely because they 
     are Alaska Native Corporations. Instead, Alaska Native 
     Corporations and Indian Tribal enterprises should be eligible 
     only if they agree to advance the goals of the HUBZone 
     program: job creation and economic development in the areas 
     that need it most.
       Second, the Senate Committee sought to make the HUBZone 
     program conform to existing Native American policy. The 
     Committee is aware of controversy over whether to change 
     Alaska Native policy so that Alaska Natives exercise 
     governmental jurisdiction over their lands, just like Tribes 
     in the Lower 48 States do on both their reservations and 
     trust lands. The Alaska Native Claims Settlement Act (ANCSA) 
     of 1971 deliberately refrained from creating Alaska Native 
     jurisdictions in Alaska, and this Committee's legislation is 
     intended to conform to existing practice in ANCSA.
       The third principle underlying this bill is that Alaska 
     Natives and Indian Tribes should participate on as even a 
     playing field as possible. Exact equivalence is not possible 
     because the Federal relationship with Alaska Natives differs 
     significantly from the relationship with Indian Tribes, and 
     also because Alaska is a very different State from the Lower 
     48. However, ANCSA provided that Alaska Natives should be 
     eligible to participate in Federal Indian programs ``on the 
     same basis as other Native Americans.'' The House Conferees 
     have agreed to adopt the Senate provision.

                  Subtitle B--Other HUBZone Provisions

       Subtitle B contains several technical changes to clarify 
     interpretive issues concerning the original HUBZone Act, as 
     well as new language to correct an unforeseen situation 
     regarding procurement of commodities. Subtitle B makes a 
     further amendment to the categories of eligible HUBZone 
     firms, to include the HUBZone program as one of the tools 
     Community Development Corporations can use in rebuilding 
     their communities and neighborhoods.
       The Conference Report includes a technical correction to 
     the definition of ``qualified census tract.'' It also makes 
     two major substantive changes to the definition of 
     ``qualified nonmetropolitan county.''
       First, the definition is clarified to ensure that 
     nonmetropolitan counties in the HUBZone program are those 
     that were considered to be such as of the time of the last 
     decennial (10 year) census. The HUBZone program relies on 
     census tracts selected in metropolitan areas based on the 
     last census, so that a metropolitan county--in order to have 
     such census tracts--must have been considered metropolitan at 
     that time. A nonmetropolitan county may be eligible as a 
     HUBZone based on income data collected during the census or 
     on unemployment data produced annually by the Bureau of Labor 
     Statistics.
       During the ten-year period between each census, some 
     counties become so integrated into the commercial activities 
     of a metropolitan area that they are moved from the 
     nonmetropolitan category to the metropolitan category. Such 
     counties would become ineligible for HUBZone participation. 
     They would not have been metropolitan counties at the time of 
     the last census, so no qualified census tracts would have 
     been selected there. They would also no longer be 
     nonmetropolitan counties, so the income and unemployment 
     tests available to such counties would no longer apply. Thus, 
     counties that change from nonmetropolitan to metropolitan, in 
     the period between each census, would become ineligible until 
     the next census is taken. The Conference Report corrects this 
     problem by freezing, for HUBZone purposes, the categories of 
     metropolitan and nonmetropolitan counties as they stood at 
     the time of the last census.
       The second major change to the definition of ``qualified 
     nonmetropolitan county'' is the addition of a grandfathering 
     clause. Because the Bureau of Labor Statistics (BLS) issues 
     new county-level unemployment data annually, nonmetropolitan 
     counties may shift into and out of eligibility on a yearly 
     basis. The Committee believes that this type of movement is 
     too fluid for a program that should be stable in its first 
     few years. Companies will be confused about the merits of the 
     program if firms lose and gain eligibility from year to year. 
     A company will not want to invest in such a county only to 
     have it suddenly become ineligible, due to new BLS data, 
     before the company has even had the opportunity to recoup its 
     investment by participating in the HUBZone program.
       The legislation seeks to stabilize this situation by 
     looking at the unemployment picture over a three-year period 
     for nonmetropolitan counties. It also provides that companies 
     in such a county will have a one year period to pursue 
     HUBZone opportunities and wrap up its activities under the 
     program, after such a county becomes ineligible due to new 
     BLS data. A similar one year period is provided for changes 
     that may result due to enactment of this legislation.


                        commodities procurement

       In 1999, the Senate Committee became aware of potential 
     implementation problems in HUBZone procurements of certain 
     commodities, particularly food-aid commodities purchased by 
     the Department of Agriculture (USDA), that could lead to 
     unintended and anti-competitive results. Because bids for 
     commodities generally tend to fall within a narrow range of 
     prices, the 10% price evaluation preference that currently 
     exists could be overwhelmingly decisive. In such purchases, a 
     handful of HUBZone firms could secure significant portions of 
     these markets. This, in turn, could prompt other vendors to 
     abandon these markets, thus reducing USDA's vendor base and 
     reducing competition. These are results that would be 
     contrary to the goals set forth in Sec. 2 of the Small 
     Business Act.
       To prevent irreparable harm to USDA's vendor base until the 
     matter could be addressed more comprehensively in this 
     legislation, Senator Bond sponsored a proviso in the Fiscal 
     2000 Agriculture Appropriations Act. As adopted in the 
     conference report, Sec. 751 of that Act limited the price 
     evaluation preference to 5% for up to half of the total 
     dollar value of each commodity in a particular tender 
     (solicitation). It also prohibited contract awards to a 
     HUBZone firm that would be of such magnitude as to require 
     the firm to subcontract to purchase the commodity being 
     procured, since such a scenario

[[Page H11084]]

     would simply allow these firms to purchase commodities from 
     subcontractors and in turn sell them to the Government at 
     inflated prices.
       The legislation seeks to address this issue on a more 
     permanent basis. The Conferees are aware that USDA relies 
     upon a complex computer program to evaluate commodities bids, 
     and thus the Conference Report seeks to set a long-term 
     policy that will not require frequent and expensive changes 
     to this software. Although the legislation reduces the level 
     of HUBZone program incentives that otherwise would be 
     available under the HUBZone Act, the bill still seeks to 
     ensure substantial awards to HUBZone concerns, while 
     protecting existing incentives available to other types of 
     small business concerns. The Conferees intend that these 
     incentives help commodities procurements contribute their 
     fair share toward achieving the Government-wide goal of 23% 
     of prime contract dollars to small business concerns, but 
     without the anti-competitive effects of awarding overwhelming 
     shares of the market to HUBZone firms.


                   community development corporations

       For reasons similar to the problems preventing HUBZone 
     program participation by Indian Tribal enterprises and Alaska 
     Native Corporations, small businesses owned by Community 
     Development Corporations were also inadvertently made 
     ineligible by the original HUBZone Act. The Conference Report 
     has included a provision to correct this problem. As with 
     Tribal enterprises and Alaska Native Corporations, addressed 
     in Subtitle A of this Title, Community Development 
     Corporations are not made automatically eligible. These firms 
     must agree to advance the job-creation goals of the HUBZone 
     program. Specifically, as other businesses must do, these 
     enterprises must maintain their principal office in a HUBZone 
     and employ 35% of their workforce from one or more HUBZones.

      Title VII: National Women's Business Council Reauthorization

       The Senate bill would re-authorize the National Women's 
     Business Council for three years, from FY 2001 to 2003, and 
     to increase the annual appropriation from $600,000 to $1 
     million. The increase in funding will allow the Council to: 
     support new and ongoing research; produce and distribute 
     reports and recommendations prepared by the Council; and 
     create an infrastructure to assist states in developing 
     women's business advisory councils, coordinate summits and 
     establish an interstate communication network. The House 
     Conferees agree in part with the Senate's title.
       The increase will also be used to assist Federal agencies 
     meet the procurement goal for women-owned businesses 
     established by Congress in 1994 under section 15(g) of the 
     Small Business Act. By law, Federal agencies must strive to 
     award women-owned small businesses at least 5 percent of the 
     total amount of Federal prime contract dollars. The Conferees 
     feel strongly that Federal agencies should meet the five-
     percent goal, and it supports the Council's plan to expand 
     its efforts to increase the percentage of prime contracts 
     that go to women-owned businesses. Based on current data, 
     women are not receiving awards proportionate to their 
     presence in the economy. For example, women-owned businesses 
     make up 38 percent of all small businesses, yet women-owned 
     businesses received only 2.42 percent of the $189 billion in 
     Federal prime contracts in FY1999.
       According to the National Foundation for Women Business 
     Owners, over the past decade the number of women-owned 
     businesses in this country has grown by 103 percent to an 
     estimated 9.1 million firms. They generate almost $3.6 
     trillion in sales annually and employ more than 27.5 million 
     workers. With the impact of women-owned businesses on our 
     economy increasing at an unprecedented rate, Congress relies 
     on the Council to serve as its eyes and ears as it 
     anticipates the needs of this burgeoning entrepreneurial 
     sector. Since it was established in 1988, the Council, which 
     is bi-partisan, has provided important unbiased advice and 
     counsel to Congress.
       This Conference Report allows the Council to continue to 
     perform its duties at the level it has done so far, as well 
     as expand its activities to support initiatives that are 
     creating the infrastructure for women's entrepreneurship at 
     the state and local level.

                  Title VIII: Miscellaneous Provisions


                      Loan Application Processing

       The Senate Conferees agreed with the House provision 
     directing the SBA to conduct a study in one year from the 
     date of enactment to determine the average time SBA requires 
     to process an SBA-guaranteed loan.


                 application of ownership requirements

       The Conferees agreed to a provision to clarify the impact 
     of community property state laws to determine the eligibility 
     for applicants for assistance under SBA's credit programs. 
     The new provision applies to the Small Business Act and the 
     Small Business Investment Act of 1958. It states that 
     eligibility of an applicant under the SBA's credit programs 
     will be determine without regard to any ownership interest of 
     a spouse arising solely form the application of the community 
     property laws of a State for purposes of determining marital 
     interests.


                 subcontracting preference for veterans

       The House Conferees agreed with the Senate provision to 
     clarify that service-disabled veterans are on the same 
     preference level as small disadvantaged businesses (SDBs) and 
     women-owned small businesses for Federal contracting 
     opportunities. When the Congress enacted the Veterans 
     Entrepreneurship and Small Business Development Act (P.L. 
     106-50), it was not absolutely clear that the contracting 
     preferences were to apply specifically to service-disabled 
     veterans. The Conferees intend for this section to clear up 
     any misunderstandings that might remain.


           small business development center program funding

       The House Conferees agreed with the Senate provision to 
     clarify the funding formula for States to receive funds under 
     the Small Business Development Center (SBDC) program. This 
     funding formula was developed in close consultation with the 
     SBA and the SBDC association. Importantly, the formula sets 
     forth how the minimum funding level will be applied. The 
     Conference Agreement assures that each SBDC will receive a 
     minimum of $500,000 annually unless the annual appropriation 
     from Congress is less than $81,500,000. If the annual 
     appropriation is more than $90,000,000, the minimum annual 
     amount shall be $500,000 plus a percentage amount equal to 
     the percentage amount by which the appropriation exceeds 
     $90,000,000.


     national veterans business development corporation correction

       The Conferees have agreed to a technical change that defers 
     for one year the requirement that the National Veterans 
     Business Development Corporation provide matching funds. The 
     authorization level for the Corporation to receive Federal 
     funds has been adjusted to the following: $4,000,000 in 
     fiscal years 2001 and 2002, and $2,000,000 in fiscal years 
     2003 and 2004.


                   private sector resources for score

       The Committees on Small Business for the Senate and House 
     of Representatives have followed the success and growth of 
     the SCORE program over the past five years. Much of the 
     success or the program is tied to its ability to obtain in-
     kind and monetary contributions from the private sector to 
     supplement the annual Congressional appropriation. Companies 
     have donated computers and Internet services to support the 
     efforts of 14,000 SCORE volunteers to provide counseling to 
     small businesses throughout the United States. The section 
     approved by the Conferees makes it clear that SCORE may 
     solicit cash and in-kind contributions from the private 
     sector to carry out its functions under the Small Business 
     Act.


                        contract data collection

       The Senate Conferees agreed with the House Conferees to 
     include a new section that makes improvements in the 
     collection of data on the growing practice by Federal 
     agencies to bundle multiple contract requirements into one 
     large contract. This practice has had a detrimental impact on 
     the ability of small businesses to compete for Federal 
     contracts. The new section clarifies the definition of a 
     bundled contract and requires the SBA to prepare an annual 
     report for the House and Senate Committees on Small Business. 
     The section also strengthens the ability of the Administrator 
     of SBA to challenge an agency decision to bundle multiple 
     contract requirements.


      procurement program for women-owned small business concerns

       The Senate Conferees agreed with the House Conferees to 
     include a new section to give Federal agencies the authority 
     to restrict competition for any contract for the procurement 
     of goods or services by the Federal government to small 
     businesses owned and controlled by women who are economically 
     disadvantaged. The SBA Administrator may waive the 
     requirement that the businesses must be owned by women who 
     are economically disadvantaged if it is determined the 
     business is in an industry in which small business concerns 
     owned and controlled by women are substantially under 
     represented.
       The purpose of H.R. 5545 the ``New Markets Venture Capital 
     Program Act of 2000,'' is to promote economic development, 
     wealth and job opportunities in low income (LI) areas by 
     encouraging venture capital investments and offering 
     technical assistance to small enterprises. The central goal 
     of the legislation is to fulfill the unmet equity investment 
     needs of small enterprises primarily located in LI areas.
       The bill creates a developmental venture capital program by 
     amending the Small Business Investment Act to authorize the 
     U.S. Small Business Administration (SBA) to enter into 
     participation agreements with 10 to 20 New Markets Venture 
     Capital (NMVC) companies in a public/private partnership. It 
     further authorizes SBA to guarantee debentures of NMVC 
     companies to enable them to make venture capital investments 
     in smaller enterprises in LI areas. And it authorizes SBA to 
     make grants to NMVC companies, and to other entities, for the 
     purpose of providing technical assistance to smaller 
     enterprises that are financed, or expected to be financed, by 
     such companies.
       The Act will also enhance the ability of existing Small 
     Business Investment Companies (SBICs) to invest in LI areas. 
     It allows them to have access to the leverage capital 
     authorized under the program, without entering into a 
     participation agreement with SBA to act as an NMVC company.
       Finally, enhances the ability of existing Specialized Small 
     Business Investment Companies (SSBICs) to invest in LI areas. 
     It allows them to have access to the operational assistance 
     grant funds authorized under the program, also without 
     entering into a participation agreement with SBA to act as an 
     NMVC company.

[[Page H11085]]

       Despite our unprecedented economic prosperity, there remain 
     places in America that have yet to reap the benefits of this 
     prosperity. Although many Americans enjoy strong income and 
     wage growth, millions in underserved areas still do not have 
     access to jobs or entrepreneurial opportunities.
       For example, between 1997 and 1998, the median income for 
     the nation's households rose 3.5 percent in real terms. Yet 
     12.7 percent of Americans (34.5 million people) still live 
     below the poverty level. These 34.5 million people live in 
     the inner cities and rural areas of America, where jobs are 
     scarce and there is little to attract would-be small business 
     investors.
       The overall poverty rate for the U.S. in 1998 was 12.7 
     percent, but the poverty rate among both African American and 
     Latino populations was 26 percent--double the national 
     average. In rural communities, poverty remains a persistent 
     problem. Job growth is well below the national average, with 
     unemployment hovering at or above 14%. Additionally, the 
     unemployment levels in many urban communities range from 7.5% 
     for African Americans to 6.4% for Hispanics. Both are nearly 
     double the national average.
       It is not enough to merely create jobs in these pockets of 
     poverty. Rather, we must create a small business backbone, an 
     economic infrastructure to enable these communities to 
     develop their full potential and participate fully in the 
     economic mainstream.
       H.R. 5545 uses SBA resources targeted to corporations and 
     small businesses that want to do business in the untapped 
     markets of our underserved communities. It is a wise 
     investment in the hopes of millions of families who are not 
     sharing in the American Dream.
       There is a pressing need for this legislation. There are 
     virtually no institutional sources of equity capital in 
     distressed communities. The national venture capital industry 
     for community development comprises only 25 firms managing 
     approximately $157 million. Only 14 of those are capitalized 
     at $5 million or more--the absolute minimum for economic 
     viability.
       H.R. 5545 will tap unrealized resources in our nation, thus 
     benefiting our economy as a whole. It will increase the 
     attractiveness of investment in places with high unemployment 
     and too few businesses. The more the business community knows 
     about these new markets, the more likely they will invest in 
     them--and the more businesses that invest in these new 
     markets, the more these areas will share in our nation's 
     economic prosperity. This legislation provides a road map for 
     the next generation to succeed, and it makes good sense from 
     both a public policy and business standpoint.

                      Section-by-Section Analysis

     Section 1. Short title
       Designates the bill as the ``New Markets Venture Capital 
     Program Act of 2000.''
     Section 2. New Markets Venture Capital Program
       This Section amends Title III of the Small Business 
     Investment Act of 1958 by adding new Sections 351 through 368 
     to establish the ``New Markets Venture Capital Program.''
       H.R. 5545 will add the following new sections to the Small 
     Business Investment Act:
     Section 351. Definitions
       Establishes definitions for developmental venture capital, 
     New Markets Venture Capital Companies, low- or moderate-
     income geographic area, operational assistance, participation 
     agreement, and Specialized Small Business Investment 
     Companies as used in the legislation.
       ``Developmental venture capital'' is defined as equity 
     capital invested in small businesses, with a primary 
     objective of fostering economic development in low income 
     geographic areas. For the purposes of this Act, the Committee 
     considers equity capital investments to mean stock of any 
     class in a corporation, stock options, warrants, limited 
     partnership interests, membership interests in a limited 
     liability company, joint venture interests, or subordinated 
     debt with equity features if such debt provides only for 
     interest payments contingent upon earnings. Such investments 
     must not require amortization. They may be guaranteed; but 
     neither the Equity capital investment nor the guarantee may 
     be secured.
       A ``New Markets Venture Capital Company'' is defined as a 
     company that has been approved by the Administration to 
     operate under the New Markets Venture Capital Program, and 
     has entered into a participation agreement with the 
     Administration to make equity investments and provide 
     technical assistance to small enterprises located in low- or 
     moderate-income areas.
       The term ``low income geographic area'' means a census 
     tract, or the equivalent county division as defined by the 
     Bureau of the Census for purposes of defining poverty areas, 
     in which the poverty rate is not less than 20 percent. In 
     those areas in a metropolitan area 50 percent or more of the 
     households must have an income equal to less than 60 percent 
     of the median income for the area. In rural areas the median 
     household income for a tract must not exceed 80 percent of 
     the statewide median household income. This definition also 
     includes any area located within a HUBZone, an Urban 
     Empowerment Zone or an Urban Enterprise Community, or a rural 
     Empowerment Zone or a Rural Enterprise Community.
       The term ``low income individual'' is included for the 
     purpose of allowing waivers of the low income area 
     requirement for areas of significant economic disadvantage 
     that may not otherwise qualify. A low income individual is 
     defined as someone whose income does not exceed 80 percent of 
     the area median income in metropolitan areas, or 80 percent 
     of either the area or statewide median income in rural areas.
       The term ``operational assistance'' is defined as 
     management, marketing, and other technical assistance that 
     assists a small business concern with business development.
       ``Participation agreement'' is defined as an agreement 
     between the Administration and an NMVC Company detailing the 
     company's operating plan and investment criteria; and 
     requiring that investments be made in smaller enterprises at 
     least 80 percent of which are located in low income 
     geographic areas.
       ``Specialized Small Business Investment Company'' means any 
     small business investment company that was licensed under 
     section 301(d) as in effect before September 30, 1996.
     Section 352. Purposes
       Describes the purposes of the Act, which are:
       (1) to promote economic development and the creation of 
     wealth and job opportunities in low- or moderate-income 
     geographic areas and among individuals living in such areas 
     by encouraging developmental venture capital investments in 
     smaller enterprises primarily located in such areas; and
       (2) to establish a developmental venture capital program, 
     with the mission of addressing the unmet equity investment 
     needs of small entrepreneurs locate in low- or moderate-
     income areas; to be administered by the Small Business 
     Administration; to enter into a participation agreement with 
     NMVC companies; to guarantee debentures of NMVC companies to 
     enable each such company to make developmental venture 
     capital investments in smaller enterprises in low- or 
     moderate-income geographic areas; and to make grants to NMVC 
     companies for the purpose of providing operational assistance 
     to smaller enterprises financed, or expected to be financed, 
     by such companies.
     Section 353. Establishment
       Authorizes the SBA to establish the NMVC Program, under 
     which the SBA may form New Markets Venture Capital companies 
     by entering into participation agreements with firms that are 
     granted final approval under the requirements set forth in 
     Section 354 and formed for the purposes outlined in Section 
     352.
       This Section also authorizes SBA to guarantee the 
     debentures issued by the NMVC Companies as provided in 
     Section 355; and to make operational assistance grants to 
     NMVC Companies and other entities in accordance with Section 
     358.
     Section 354. Selection of the New Markets Venture Capital 
         Companies
       Establishes the criteria to be followed by SBA in selecting 
     the NMVC Companies. This section provides for specific 
     selection criteria to be developed by the SBA--based on the 
     criteria enumerated in this legislation--and designed to 
     ensure that a variety of investment models are chosen and 
     that appropriate public policy goals are addressed. 
     Geographic dispersion must also be taken into account in the 
     selection process.
       H.R. 5545 requires Program participants to satisfy the 
     following application requirements:
       (1) Each NMVC must be a newly formed, for-profit entity 
     with at least $5 million of contributed capital or binding 
     capital commitments from non-Federal investors, and with the 
     primary objective of economic development in low- or 
     moderate-income geographic areas.
       (2) Each NMVC's management team must be experienced in some 
     form of community development or venture capital financing.
       (3) Each NMVC must concentrate its activities on serving 
     its investment areas, and submit a proposal that will expand 
     economic opportunities and address the unmet capital needs 
     within the investment areas.
       (4) Each applicant must submit a strong proposal to provide 
     operational assistance, including the possible use of 
     outside, licensed professionals.
       (5) Each NMVC must have binding commitments (in cash or in-
     kind) for operational assistance and overhead, payable or 
     available over a multi-year period not to exceed 10 years, in 
     an amount equal to 30% of its committed and contributed 
     capital. These commitments may be from any non-SBA source and 
     the cash portion may be invested in an annuity payable semi-
     annually over a multi-year period not to exceed 10 years.
       The Committee is well aware that it will be difficult for 
     some NMVCs to raise their entire operational assistance match 
     during the application stage. Those NMVCs that are unable to 
     raise the required match, but have submitted a reasonable 
     plan to the Administrator to meet the requirement, may be 
     granted a conditional approval from the Administrator and be 
     allowed to draw one dollar of federal matching funds for 
     every dollar of private funds raised provided that (for the 
     purpose of final approval) they raise at least 20 percent of 
     the required matching funds, and have at least 20 percent of 
     the match on hand when applying for additional grant funds.
       The Committee believes that it is important to give NMVCs 
     the flexibility to obtain the required private operational 
     assistance funds, however, from a safety and soundness 
     standpoint, federal assistance funds should

[[Page H11086]]

     not be placed at greater risk than private assistance funds.
       This conditional approval shall be made with the 
     expectation that the required capital funding commitments 
     will be obtained within two years of the conditional 
     approval.
       The bill also authorizes SBA to select firms that have 
     experience with investing in enterprises located in low 
     income areas to participate as NMVCs. SBA will enter into an 
     agreement with each NMVC setting forth the specific terms of 
     that firm's participation in the program. Each agreement will 
     be tailored to the particular NMVC's operations and will be 
     based on the NMVC's own proposal, submitted as part of the 
     NMVC's application form. The agreement will require that 
     investments be made by the NMVC in smaller enterprises, at 
     least 80% of which are located in low income geographic 
     areas.
       In order for an investment to be counted toward the 80% 
     goal under H.R. 5545, the investment must be made in a small 
     business concern located in an LI area. This ensures that the 
     New Markets Venture Capital Company Program will focus 
     investment capital where it is most needed, rather than 
     duplicating existing SBA programs.
       The Committee believes that the targeting of low-income 
     communities is the most important element of H.R. 4530. If 
     Congress and the Administration are serious about helping our 
     nation's low-income cities, towns, and rural areas we should 
     demonstrate our commitment by ensuring that this bill is 
     focused on these areas. The Committee has accomplished this 
     by requiring that 80% of all investment will concentrate on 
     those needing this help the most.
       By clearly focusing this legislation on the communities 
     that need assistance the most, the Committee has maximized 
     the impact of this program. It is also the Committee's view 
     that by investing the majority of funds in low income 
     communities, we will not only provide the benefit of 
     increased opportunities for working families, but H.R. 4530 
     will also provide the benefit of improving the physical 
     community. This double benefit ensures that the resources 
     spent under H.R. 4530 will provide the maximum economic 
     impact on the low- or moderate-income communities to which 
     this bill is targeted.
       The Committee recognizes that the legislation may offer 
     some benefits to working families located outside of the LMI 
     areas as defined by the legislation. To address this concern, 
     up to 20% of a New Markets Venture Capital Company's 
     investments are permitted in those businesses that are in 
     need of equity investment, but fall outside the LMI areas as 
     defined by the legislation. However, it is the Committee's 
     strong opinion that to reduce the targeting below 80% would 
     significantly diminish the impact in the LMI areas, and would 
     be contrary to the intent of the program. In addition, the 
     Act includes a provision allowing the Administrator to waive 
     the low income designation requirements for areas of 
     significant economic distress that would not otherwise 
     qualify.
     Section 355. Debentures
       Authorizes SBA to guarantee debentures issued by NMVC 
     companies. The terms of the guaranteed debentures issued 
     under this section may not exceed 15 years and the maximum 
     total guarantee for any NMVC company shall not exceed 150 
     percent a company's private capital.
     Section 356. Issuance and guarantee of trust certificates
       Authorizes SBA to issue and guarantee trust certificates 
     representing ownership of all or part of the debentures 
     issued by an NMVC company and guaranteed by the 
     Administration. Each guarantee issued under this section is 
     limited to the amount of the principal and interest on the 
     guaranteed debentures that compose the trust or pool of 
     certificates.
       This section grants SBA subrogation and ownership rights 
     over the trust certificates guaranteed under this section, 
     but prohibits SBA from collecting a fee for any guarantee of 
     a trust certificate issued under this section. Finally, this 
     section allows SBA to contract with an agent to carry out the 
     pooling and central registration functions for the trust 
     certificates issued.
     Section 357. Fees
       Authorizes SBA to charge such fees as it deems appropriate 
     with respect to any guarantee or grant issued to an NMVC 
     company.
       This authorization is subject to the prohibition contained 
     in Section 356 that prohibits SBA from collecting a fee for 
     any guarantee of a trust certificate issued under that 
     section.
     Section 358. Operational assistance grants
       Authorizes SBA to make operational assistance grants to New 
     Markets Venture Capital Companies established under the 
     legislation and to certain Specialized Small Business 
     Investment Companies.
       Each NMVC is eligible for one or more grants, on a matching 
     basis, in an amount equal to the amount the NMVC makes 
     available for operational assistance. The operational 
     assistance grant will be made available to the NMVC semi-
     annually over a multi-year period not to exceed 10 years. SBA 
     is also authorized to provide supplemental grants to NMVCs.
       This section of the bill also allows Specialized Small 
     Business Investment Companies (``SSBICs'') access to the 
     operational assistance grant funds authorized under the 
     program without entering into a participation agreement with 
     SBA to act as an NMVC company. The participation of the 
     SSBICs, however, is limited only to investments they make in 
     LMI areas after the date of enactment, and they must match 
     the operational assistance funds to one LMI investment.
       This section of the bill explicitly prohibits NMVCs and 
     SSBICs from using operational assistance grants, both the 
     federal contribution and the match, to supplement their own 
     bottom line. This prohibition includes items that are not 
     aimed at directly benefiting the small enterprises, such as, 
     but not limited to--the purchase of furniture, office 
     supplies, physical improvements to the NMVCs' or SSBICs' 
     places of business, and marketing services. The Committee 
     included this limitation to ensure that the investments made 
     through this program will be for the benefit of small 
     businesses located in LMI areas, which is the intent of the 
     legislation.
       It is the Committee's view that this provision does allow 
     for operational assistance funds under the legislation to be 
     used for salaries of those NMVC or SSBIC employees that are 
     providing direct technical assistance to the small 
     enterprise. NMVCs and SSBICs that use their own staff to 
     provide the necessary direct assistance to smaller 
     enterprises may be reimbursed for the direct cost of staff 
     out of grant funds, but only to the extent such costs are 
     allocable to the operational assistance.
       This section also requires the NMVC companies to document 
     in their operation plan the extent to which they intend to 
     use licensed professionals (e.g., licensed attorneys and 
     Certified Public Accountants) when providing technical 
     assistance that requires such expertise. This ensures that 
     the NMVC companies will provide the best assistance possible 
     to the small business concerns. It is not meant to be 
     construed as requirement that licensed professional are sole 
     persons to provide such assistance, but their use is 
     encouraged is highly technical situations.
       Evidence presented to the Congress by the community 
     development venture capital advocates indicates that 
     providing technical assistance to a small business 
     dramatically increases that business' chance of success. The 
     Congress wishes to ensure that all small businesses receiving 
     technical assistance under this program will receive the best 
     technical assistance available. We believe this will further 
     increase the businesses' chances of success.
     Section 359. Bank participation
       Allows any national bank, and any member bank of the 
     Federal Reserve System to invest in an NMVC company formed 
     under this legislation so long as the investment would not 
     exceed 5 percent of the capital and surplus of the bank.
       Banks that are not members of the federal Reserve system 
     are allowed to invest in an NMVC company formed under this 
     legislation so long as such investment is allowed under 
     applicable State law, and so long as the investment would not 
     exceed 5 percent of the capital and surplus of the bank.
     Section 360. Federal financing bank
       Establishes that Section 318 of the Small Business 
     Investment Act does not apply to any NMVC Company created 
     under this legislation.
     Section 361. Reporting requirements
       Establishes reporting requirements for the NMVC Companies. 
     Specifically, the NMVC companies are required to provide to 
     SBA such information as the Administration requires, 
     including: information related to the measurement criteria 
     that the NMVC proposed in its program application; and, for 
     each case in which the NMVC makes an investment or a grant to 
     a business located outside of an LMI area, a report on the 
     number and percentage of employees of the business who reside 
     in an LMI area.
     Section 362. Examinations
       Requires that each NMVC company shall be subjected to 
     examinations made at the direction of the Investment Division 
     of SBA. This section allows for examinations to be conducted 
     with the assistance of a private sector entity that has both 
     the necessary qualifications and expertise.
       It is the intent of the Committee that the oversight of the 
     NMVC program be modeled after that developed for the SBIC 
     program and administered by SBA's Investment Division. 
     Oversight should include a close working relationship between 
     SBA analysts and NMVC management teams, detailed reporting 
     requirements, frequent on-site examinations to evaluate 
     performance and conformance with the operating plan, and 
     careful analysis of the firm's economic impact.
     Section 363. Injunctions and other orders
       Grants SBA the power of injunction over NMVC companies and 
     the authority to act as a trustee or receiver of a company if 
     appointed by a court.
       This section of the legislation closely tracks the existing 
     injunction provision (Section 311) of the Small Business 
     Investment Act of 1958. Again, it is the Committee's intent 
     that oversight of the NMVC program be modeled after that 
     developed for the SBIC program and administered by SBA's 
     Investment Division. This oversight should include a close 
     working relationship between SBA analysts and NMVC management 
     teams, detailed reporting requirements, frequent on-site 
     examinations to evaluate performance and conformance with the 
     operating plan, and careful analysis of the firm's economic 
     impact.
     Section 364. Additional penalties for noncompliance
       Grants SBA or the Attorney General the authority to file a 
     cause of action against an

[[Page H11087]]

     NMVC company for non-compliance. Should a court find that a 
     company violated or failed to comply with provisions of this 
     legislation or other provisions of the Small Business 
     Investment Act of 1958, this section grants SBA the authority 
     to void the participation agreement between the company and 
     the SBA.
     Section 365. Unlawful acts and omissions; breach of fiduciary 
         duty
       Defines what is to be considered as a violation of this 
     legislation, who is considered to have a fiduciary duty, and 
     who is ineligible to serve as an officer, director, or 
     employee of any NMVC company because of unlawful acts.
       This section of the legislation closely tracks the unlawful 
     acts provision (Section 314) of the Small Business Investment 
     Act of 1958. It is the Committee's intent to grant SBA the 
     same authority over NMVC companies that it has over Small 
     Business Investment Companies with respect to unlawful acts 
     and the breach of fiduciary responsibility.
     Section 366. Removal or suspension of directors or officers
       Grants SBA the authority to use the procedures set forth in 
     Section 313 of the Small Business Investment Act of 1958 to 
     remove or suspend any director or officer of an NMVC company.
     Section 367. Regulations
       Authorizes the Small Business Administration to issue such 
     regulations as it deems necessary to carry out the provisions 
     of the legislation.
     Section 368. Authorization of appropriations
       Authorizes appropriations for the Program for Fiscal Years 
     2001 through 2006. This section authorizes such subsidy 
     budget authority as necessary to guarantee $150,000,000 of 
     debentures and $30,000,000 to make operational assistance 
     grants.
       The Committee estimates that the Program will only require 
     a one-time appropriation of $45 million--$15 million for loan 
     guarantees and $30 million for operational assistance grants. 
     This $15 million will allow SBA to back $150 million in loans 
     to small business in low- or moderate-income areas.
     Section 368(c). Conforming amendment
       Makes a conforming change to the Small Business Investment 
     Act of 1958 to account for the changes made by this 
     legislation.
     Section 368(d). Calculation of maximum amount of SBIC 
         leverage
       Allows Small Business Investment Companies (``SBICs'') to 
     obtain additional access to leverage outside the statutory 
     caps. The exemption of the SBICs, however, is limited only to 
     investments they make in LMI areas.
       This section provides that investments made in LI areas 
     will not apply against the leverage cap of the individual 
     SBIC as long as the total amount invested through the program 
     does not exceed 50% of the SBIC's paid-in capital.
     Section 368(e). Bankruptcy exemption for new markets venture 
         capital companies
       Adds NMVC companies to the list of entities that may not be 
     considered a debtor under a Title 11 bankruptcy proceeding.
     Section 368(f). Federal savings associations
       Amends the ``Home Owners Loan Act'' to allow federal 
     savings associations to invest in an NMVC company formed 
     under this legislation so long as the investment would not 
     exceed 5 percent of the capital and surplus of the savings 
     association.

                         Sec. 903. BusinessLINC

       H.R. 5545, also establishes the BusinessLINC program, 
     designed to promote business growth in inner cities and 
     economically distressed rural areas by matching large and 
     small firms into business-to-business partnering and 
     mentoring relationships. BusinessLinc would accomplish this 
     by providing seed funding to third party entities such as 
     local Chambers of Commerce to promote such relationships. In 
     addition to seed funding, such entities will also receive 
     funds for technical assistance programs to small businesses 
     to supplement the mentor-protege relationships established as 
     a result of BusinessLINC.
       BusinessLINC helps businesses by providing online 
     information and a database of companies that are interested 
     in mentor-protege programs.
       Grants may be made to a coalition/combination of private 
     and public entities only if the coalition/combination 
     provides an amount, either in kind or in cash, equal to the 
     grant amount for the purposes above.
       Despite the unprecedented economic prosperity we are 
     experiencing in this country, there are several areas of the 
     country that have still not achieved parity. These areas are 
     primarily inner cities, rural areas, and Native American 
     communities. BusinessLINC will enable business opportunities 
     for small businesses who would otherwise have no access to 
     outside larger markets. While these small businesses have 
     strong potential, they are located in communities where 
     corporate America would not necessarily look. BusinessLINC 
     will break that barrier. When the BusinessLINC model has been 
     applied in the past, small businesses have seen growth as 
     much as 45 percent. With this assistance, the local community 
     will be charting its own path to recovery. The ``LINC'' in 
     BusinessLINC stands for ``Learning, Information, Networking, 
     and Collaboration.''


                      SECTION BY SECTION ANALYSIS

     Section 1. Short title
       Designates the bill as the ``BusinessLINC Act of 2000.''
     Section 2. Authorization
       This Section amends the Small Business Act by Adding a new 
     paragraph (m), ``BusinessLINC grants and cooperative 
     agreements.''
       Paragraph (1) allows the Administrator to make grants or 
     enter into cooperative agreements with any coalition/
     combination of private and/or public entities to (a) promote 
     business-to-business relationships between large and small 
     businesses and (b) to provide online information and a 
     database of companies that are interested in mentor-protege 
     programs.
       It is the opinion of the Conference that private and/or 
     public entities eligible for grants should be limited to 
     chambers of commerce and other not-for-profit business 
     organizations. The Conferees intend that grant money be 
     provided to large businesses. Further, if a grant is made to 
     a combination of entities, one entity must take a lead 
     position.
       It is further the opinion of the Conference that promotion 
     of business-to-business relationships between large and small 
     businesses referenced in paragraph (a) above should include 
     the facilitation of such relationships as mentor-protege, 
     prime/subcontractor, and teaming.
       The Conference intends that an element to be considered by 
     the Administrator when evaluating a grant proposal, shall be 
     the training of small businesses or ``proteges.'' An 
     additional evaluation element intended by the Conference 
     shall be measurable goals to be achieved through the 
     business-to-business partnerships.
       The Conference further intends that the online database 
     referenced in paragraph (b) above, should make use of the 
     SBA's current PRO-Net database to the greatest extent 
     practicable. The Conference is concerned that online privacy 
     issues should also be addressed by the SBA in the 
     implementation of the databases. Further, it is the 
     Committee's opinion that the databases should be vigilantly 
     maintained by the SBA to ensure that only firms eligible to 
     be mentors should be included in the mentor database, and 
     only those firms eligible to serve as intermediaries should 
     be included in the intermediary database.
       Paragraph (2) specifies that the Administrator may make 
     grants as long as the coalition/combination of public and/or 
     private entities provides an amount, either in kind or in 
     cash, equal to the grant amount for the purposes delineated 
     in paragraph (1) above.
       The Conference is well aware that it may be difficult for 
     some entities to raise their entire match during the 
     application stage. Those entities that are unable to raise 
     the required match, but have submitted to the Administrator a 
     reasonable plan to meet the requirement, may be granted a 
     conditional approval from the Administrator and be allowed to 
     draw one dollar of federal matching funds for every dollar of 
     private funds raised. This conditional approval shall be made 
     with the expectation that the required funding commitments 
     will be obtained within two years of the conditional 
     approval.
       The Conference believes that it is important to give 
     entities the flexibility to obtain the required private 
     operational assistance funds, however, from a safety and 
     soundness standpoint, federal funds should not be placed at 
     greater risk than private capital.
       Paragraph (3) specifies the authorization for the program 
     for fiscal years 2001 through 2003. This amount shall be 
     $6,600,000 for each of the three fiscal years.

     Jim Talent,
     Dick Armey,
                                Managers on the Part of the House.

     Christopher Bond,
     Conrad Burns,
     Managers on the Part of the Senate.

                          ____________________